Federal Reserve Chair Jerome Powell’s speech in Philadelphia this week sounded like a turning point for U.S. monetary policy. After months of waiting and watching inflation cool while job growth slows, Powell hinted that rate cuts could be coming as soon as later this month. His comments, delivered to the National Association for Business Economics, struck a careful balance, recognizing progress on inflation while acknowledging that the labor market is losing momentum.
Powell didn’t come right out and declare a rate cut, but the message was clear enough. “We’re at a stage where the risks are more evenly balanced,” he said, suggesting the Fed is nearing the point where holding firm on high borrowing costs could do more harm than good. It was a softer tone than his comments earlier in the year and one that investors quickly took as a sign that easier policy is ahead.
He also gave an important update on the Fed’s bond holdings. Over the last several years, the central bank has been shrinking its balance sheet, which once ballooned to about $6.6 trillion after massive pandemic-era purchases. Powell said the Fed is getting close to the end of this “quantitative tightening” process. In his words, the runoff would end “when reserves are above the level we consider consistent with ample reserve conditions.” He didn’t give a specific date but implied changes could come within “the coming months.” For financial markets, that was another sign that the tightening cycle is wrapping up.
The Fed chair was equally careful when discussing interest rates. He outlined the risk of moving too fast,potentially leaving the inflation fight unfinished, but he also warned that moving too slow could cause “unnecessary and painful” job losses. That’s a real concern given recent data showing job growth has cooled sharply, with only 22,000 positions added in August. Powell acknowledged “significant downside risks” to employment, a signal that the Fed now sees weakness in the job market as a genuine threat.
Investors, always quick to interpret these clues, are betting the central bank will lower its benchmark rate by a quarter of a percentage point at its October 29–30 policy meeting. A second cut could follow in December if the data continues to show strain in the labor market. Powell’s remarks reinforced a view on Wall Street that the Fed is preparing to pivot from restraining growth to supporting it, without letting inflation regain traction.
On that front, Powell pointed to inflation data showing core personal consumption expenditures at 2.9 percent in August. While that remains above the Fed’s 2 percent goal, he said inflation pressures are “contained” and partly driven by tariffs pushing up goods prices. Still, a temporary government shutdown that has delayed key reports on jobs and inflation has made the near-term data picture hazier than usual, creating fresh challenges for policymakers.
Notably, Powell defended the Fed’s pandemic-era bond buying. Critics argue those programs inflated asset prices and widened inequality, but Powell countered that they were critical to stabilizing financial markets and keeping credit flowing when the economy was on the brink. He acknowledged the tradeoffs but said the central bank’s actions were aimed squarely at protecting the broader economy.
Economists read Powell’s speech as confirmation that the landscape has changed. Tariffs, immigration constraints, and surging investment in artificial intelligence are reshaping the economy in unpredictable ways. Veteran economist Diane Swonk captured the mood succinctly: “The rate-cut cycle is approaching.”
Markets wasted no time reacting. Treasury yields fell sharply, and the Dow Jones Industrial Average jumped nearly 400 points as traders welcomed what they saw as a gentler Fed. As Powell reminded his audience, though, there’s no “risk-free path” ahead. The big question now is whether rate cuts will arrive soon enough, and with just the right touch to keep the economy on track without reigniting inflation.
