Powell Warns Fed Faces Tough Choices as Stock Market Tests Cuts

Federal Reserve Chair Jerome Powell delivered a stark message this week: monetary policy walks a tightrope with "no risk-free path." Inflation persists above the 2% target while job growth falters, pulling the Fed in opposing directions. The recent 25-basis-point rate cut aimed to bolster employment, but risks reigniting price pressures. Powell emphasized the delicate balance between stabilizing prices and maximizing employment—a task complicated by political crosscurrents.

Divisions within the Fed erupted over the latest rate decision. New Governor Stephen Miran pushed for a more aggressive 50-basis-point reduction, arguing restrictive rates threaten layoffs and economic weakening. Atlanta Fed President Raphael Bostic and others countered that stubborn inflation warrants caution. Powell acknowledged the need for vigilance amid global trade tensions, exposing the fragility of consensus at the central bank.

Equities rallied ahead of the Fed meeting on expectations of looser policy, with major indexes hitting record highs post-cut. Powell's warning about "fairly highly valued" markets, however, cast a shadow over the celebration. The Fed now navigates a triple challenge: cooling inflation without crushing growth, managing market euphoria, and maintaining unity within its ranks.