Federal Reserve: Monetary Policy and the Fed’s Framework Review

On Friday, August 22, 2025, Federal Reserve Chairman Jerome Powell spoke at an economic symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming. Acknowledging that the “U.S. economy has shown resilience in a context of sweeping changes in economic policy” over the course of this year; and although “the labor market remains near maximum employment, and inflation, though still somewhat elevated, has come down a great deal for its post-pandemic highs,” the balance of risks appears to be shifting. Several new challenges have arisen this year creating “significant uncertainty about where all of these policies will eventually settle and what their lasting effects on the economy will be — significantly higher tariffs across our trading partners that are remaking the global trading system; tighter immigration policy has led to an abrupt slowdown in labor force growth; and over the longer run, changes in tax, spending, and regulatory policies may also have important implications for economic growth and productivity. Upon addressing the subject of employment, Powell cited the U.S. Bureau of Labor Statistics’ (BLS) recently released July report which “showed that payroll job growth slowed to an average pace of only 35,000 per month over the past three months, down from 168,000 per month during 2024” — a slowdown that was more significant than anticipated despite the nation’s unemployment rate, which has been “broadly stable over the past year,” edging slightly upwards but continuing to remain at a historic low level of 4.2 percent in July. In contrast, Gross Domestic Product (GDP) has “slowed notably in the first half of the year to a pace of 1.2 percent, roughly half the 2.5 percent pace in 2024” — largely reflecting a slowdown in consumer spending.

While the full effect of higher tariffs and the impact on inflation has yet to be determined, prices have begun to rise in some categories of goods. “Estimates based on the latest available data indicate that total Personal Consumption Expenditures (PCE) prices rose 2.6 percent over the 12 months ending July,” while core PCE prices (excludes food and energy categories) rose 2.9 percent during the same period. Though Fed officials expect the effects of the tariffs on consumer prices to accumulate over coming months, there remains high uncertainty about timing and amounts, but it is possible “that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic.” In response to the heightened challenges created by conflicting economic signals and what the implications for monetary policy will be, Powell said that at a time when the Fed’s “goals are in tension like this,” with risks to inflation tilted to the upside and risks to employment to the downside in the near term,” it puts policy in restrictive territory, and the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” Powell pointed out that over the past year, ongoing efforts by the Federal Reserve have brought its policy rate 100 basis points closer to neutral than it was a year ago; and “the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance.” Powell further stated that, “We cannot say for certain where rates will settle out over the longer run, but their neutral level may now be higher than during the 2010s, reflecting changes in productivity, demographics, fiscal policy, and other factors that affect the balance between saving and investment.”

Source:    https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm