Powell Says “No Risk-Free Path” in Providence Speech — Evening Brief – 09.23.25  

Federal Reserve Chair Jay Powell used his speech to the Greater Providence Chamber of Commerce to emphasize the central bank’s increasingly difficult balancing act: inflation that is proving stickier than anticipated and labor markets showing signs of strain. “Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation,” Powell said. “Two-sided risks mean that there is no risk-free path.” 

Powell noted that GDP growth slowed to roughly 1.5% in the first half of the year, down from 2.5% last year, as consumer spending softened. Housing remains weak, while business investment in equipment and intangibles has ticked up. The unemployment rate edged to 4.3% in August, job creation has fallen to an average of just 29,000 per month over the summer—below the breakeven pace needed to keep unemployment stable. At the same time, headline PCE inflation rose to 2.7% year-over-year in August, up from 2.3% a year earlier, while core PCE climbed to 2.9%. Powell attributed much of the recent uptick to tariff-related price increases, calling them a “one-time” adjustment that could take several quarters to flow through supply chains. 

Against this backdrop, the Federal Open Market Committee cut rates by 25 basis points last week, lowering the target range to 4.00–4.25%. Powell stressed that this stance is “still modestly restrictive,” but closer to neutral, positioning the Fed to respond to incoming data. He warned that cutting too aggressively risks allowing inflation to linger above target, while keeping policy too tight for too long could accelerate labor market weakness. “When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate,” he said. 

For investors, Powell’s comments point to a familiar roadmap: the front end of the yield curve will continue to track Fed policy, with markets currently pricing in 50 basis points of additional easing by year-end. Without softer labor data and cooler inflation, however, 2-year yields could reverse lower-rate bets. The longer end remains less predictable—Powell’s caution suggests that if growth stabilizes and sticky core inflation lingers, term premia could rebuild, pushing the 10-year Treasury yield up by 25 to 50 basis points after the short-lived bull steepening that followed last week’s cut.