Powell Holds the Line: No ‘Fed Put’ Coming as Inflation, Jobs, and Stocks Collide

Jerome Powell’s latest remarks at the Greater Providence Chamber of Commerce 2025 Economic Outlook Luncheon were notable less for what was new than for what wasn’t. The Fed Chair largely stuck to the script he laid out at last week’s FOMC press conference, reinforcing the central bank’s cautious, risk-management approach in the face of sticky inflation and a cooling labor market. The absence of fresh policy signals underscored Powell’s preference to let incoming data, rather than political noise or market pressure, dictate the next move.

Powell described the Fed’s recent 25-basis-point cut as another step toward neutrality rather than the start of a cutting cycle. He emphasized that monetary policy remains “modestly restrictive,” with the central bank still positioned to respond to evolving risks. This balancing act reflects what Powell called a two-sided challenge: ease too much and inflation could become entrenched, stay too tight for too long and the labor market could soften unnecessarily. In his words, “there is no risk-free path.”

On the economy, Powell acknowledged that growth has moderated compared with last year’s pace. GDP expanded at about 1.5 percent in the first half of 2025, down from 2.5 percent in 2024. Consumer spending has cooled, and businesses remain cautious, citing uncertainty about trade, regulation, and tariffs. Housing activity continues to drag, even as business investment in equipment and intangibles shows signs of stabilization. The Beige Book’s anecdotal evidence reinforced Powell’s narrative: sentiment has improved from spring lows but remains subdued.

The labor market, long the anchor of U.S. resilience, is showing cracks. Powell highlighted a “marked slowing in both the supply of and demand for workers”—a rare development suggesting that the labor market is becoming less dynamic. Payroll growth has slipped to an average of just 29,000 jobs per month over the past three months, well below the breakeven rate needed to hold the unemployment rate steady. The jobless rate edged up to 4.3 percent in August, a level still consistent with near-full employment but softer than earlier in the cycle. Powell pointed out that hiring rates, particularly among younger workers and recent graduates, have dropped sharply, with some debate about whether AI adoption is partly responsible. He framed this shift as an important downside risk, one that contributed to the Fed’s decision to cut rates last week.

Inflation remains the stickier half of the mandate. Powell cited August PCE inflation at 2.7 percent year-on-year, with core at 2.9 percent, both higher than a year ago (both in line with current economist estimates ) The source of the recent uptick, he argued, is concentrated: goods prices are rising again, largely due to tariffs, rather than a broad resurgence in demand-driven inflation. Services disinflation continues, particularly in housing. Powell’s base case is that tariff-related price increases will prove temporary, fading as supply chains adjust. Still, he warned that the Fed would not allow a “one-time” price jump to morph into a persistent inflation problem.

Markets also seized on Powell’s brief nod to asset valuations. He noted that equity prices are “fairly highly valued,” a statement that sounded more like an observation than a warning. Historically stretched valuations are hardly breaking news, but the comment reinforced the impression that there is no urgency for a “Fed put.” With equities broadly strong, Powell signaled that the central bank sees no need to underwrite risk assets, particularly when the macro picture remains reasonably constructive.

Market reaction to Powell’s remarks was muted but leaned negative. U.S. indices drifted lower in the morning session, then moved sideways as traders waited for Powell’s speech and President Trump’s appearance at the United Nations. After Powell delivered nothing new, stocks sold off modestly in the afternoon, with declines concentrated in mega-cap tech and small caps—the very groups that have powered recent rallies. This price action looks more like profit taking than a direct response to Powell.

Another factor likely weighing on sentiment was the Treasury’s two-year auction, which came in soft. Indirect bidders represented just 57 percent of demand, and the bid-to-cover ratio was 2.51x, below the 12-month average of 2.67x. While auction headlines barely made a dent on financial news tickers, bond desks were paying attention. Yields moved higher, providing a more plausible catalyst for equity weakness than Powell’s predictable talking points.

In a broader context, Powell used the speech to defend the Fed’s credibility against critics. Without naming names, he indirectly rebutted voices like Treasury Secretary Scott Bessent, who has argued that the central bank’s actions since the financial crisis amount to “mission creep” and political overreach. Powell countered by reminding listeners that both the 2008 crisis and the 2020 pandemic forced the Fed into extraordinary measures to prevent economic catastrophe. Despite those shocks, he argued, the U.S. economy has performed as well as or better than most advanced economies.

Ultimately, Powell’s message in Providence was steady, not sensational. Growth is slowing, inflation remains elevated but tariff-driven, and the labor market is softening in a way that demands vigilance. Policy remains restrictive but flexible, with the Fed prepared to move in either direction if conditions warrant. For markets, the implication is clear: don’t expect a rescue rally engineered by the central bank. If anything, Powell’s calm, repetitive tone reinforced the idea that the Fed is content to let data—and markets—find their own equilibrium.