Federal Reserve Chair Jerome Powell on Wednesday described the U.S. economy as “very unusual,” saying policymakers are navigating a rare combination of tariff-driven goods inflation and a labor market that may already be weaker than official data suggests.
Powell made the striking admission the Fed believes the official payroll figures—which have slowed sharply since the summer—are overstating job growth by roughly 60,000 per month.
“I think a world where job creation is negative … we need to watch that very carefully,” Powell said.
Instead, Powell said, the bulk of the problem is a “one-time price increase” pushing up goods categories as import levies work their way through supply chains. Goods inflation, he noted, should peak around the first quarter of 2026, assuming no additional tariff rounds.
Those crosscurrents have fractured the Fed. Three officials formally dissented from the rate cut on Wednesday, and several others offered what Powell described as “soft dissents,” when an official’s personal projection falls out of what they ultimately voted for. There were six such “soft dissents” this time, during one of the deepest divides inside the Federal Open Market Committee in years, driven by disagreement over how to weigh the risks of lingering inflation against the possibility that job growth is weaker—and much more fragile—than reported.
Powell stressed that policymakers cannot simply choose one mandate to prioritize.
“There is no risk-free path,” he said, a refrain he’s repeated for months. “When both sides of the mandate are threatened, you should be kind of neutral.”
He characterized the current stance as being at the “high end” of neutral, allowing the Fed to “wait and see” how the data evolve.
