Jerome Powell flags inflation risks if interest rates are cut ‘too aggressively’ — 5 key highlights from his speech

Jerome Powell Speech: US Fed Chairman Jerome Powell, in his first speech after the Federal Open Market Committee's (FOMC) interest rate cut, said that if the central bank cuts its benchmark rates ‘too aggressively,’ then it poses inflation risks in the US economy.

The US Fed's FOMC on Wednesday, 17 September 2025, decided to cut the key benchmark interest rate by 25 bps to a range of 4.00% to 4.25%. The committee further said that they will keep assessing the incoming data, the evolving outlook, along with the balance of risks to decide if there are more rate cuts required in the US economy.

Here are five key highlights from Powell's speech

1. Inflation risk: In his speech on Tuesday, 23 September 2025, Jerome Powell said that if the Fed cuts its rates too fast, it will leave the task of containing inflation unfinished to bring it under the central bank's target range.

“If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2% inflation,” said Powell in his speech.

However, attributing his recent rate cut move, Powell added that if the Fed maintained a ‘restrictive policy’ for too long, it could unnecessarily soften the labor market of the US economy. This stance sheds light on how the central bank faces a dual challenge for its stance moving forward.

2. What's next for US Fed: Powell also said that the FOMC will focus their attention towards reviewing data carefully to understand if the policy stance is moving the right way. The upcoming Federal Reserve meeting is set to be held from 28 October to 29 October 2025, according to the official data.

“We'll be looking at the data very carefully, labor market data, growth data, inflation data, quantities of data that we get, and ask ourselves, is the policy in the right place,” said Powell in his speech.

Investors will now be focusing on the next US Fed meeting in the upcoming month, in hopes for another potential rate cut for the US economy.

3. On Tariffs Impact: Powell also highlighted that the US government is collecting a ‘good bit of revenue’ from the tariffs imposed on world nations.

“We're now collecting a good bit of revenue, government support, federal government putting a good chunk of revenue, $300-400 billion a year pace. The question is, who's paying for that? And the candidates that pay those tariffs would be the exporter, the foreign exporter, or someone on our shores,” said Powell.

According to the Fed Chairman, retailers and importers are not passing along the impact of the tariffs to consumers, keeping inflation at a moderate stage.

“It's retailers and it's importers, and they're not passing along to consumers that much of the cost. So the actual effects on inflation have been quite modest in the authorities, it's a small amount,” said Powell.

Powell expects the US inflation to return to its non-tariff levels by well into next year after the one-time increase due to the US government-imposed tariffs.

4. Federal policy's effect on investments: Powell said the US government's federal public policy is weighing in on the investment flows into the nation.

“Significant uncertainty about federal public policy is kind of weighing on investments and the decisions about investment in hiring, except in the area of AI,” said Jerome Powell.

Powell's response comes after a question on the US Fed's Boston Beige Book, a report document which is released eight times a year.

5. Economic resilience: Powell highlighted that the US economy is showing resilience amid the substantial changes in the federal government's trade and immigration policies.

The Fed Chairman said that the federal government policies' effects will take some time to show the longer-term implications.

“The US economy is showing resilience in the midst of substantial changes in trade and immigration policies, as well as in fiscal, regulatory and geopolitical arenas. These policies are still emerging, and their longer-term implications will take some time to be seen,” said Jerome Powell in his speech on Tuesday.

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