Powell Speech Warns on Tariff Risks

The US economy stands at a pivotal moment, pulled between robust growth and emerging risks to jobs and prices. Federal Reserve Chair Jerome Powell’s recent remarks at the National Association for Business Economics conference underscore a delicate balancing act for policymakers. With tariffs, immigration restrictions, and a government shutdown clouding data, the Fed confronts a complex landscape. This article explores the competing forces shaping monetary policy, their implications for global capital markets, and what lies ahead as the Fed prepares for its October 28-29, 2025, meeting.

New trade policies, including evolving tariffs and immigration restrictions, are creating significant headwinds for the US economy. “There are conflicting forces that are affecting the US economy, in particular, with the US economy essentially being constrained by tariffs...Also by reduced immigration,” noted EY-Parthenon Chief Economist Gregory Daco. Companies have so far absorbed tariff costs by trimming profits or cutting expenses, a dynamic driving short-term productivity gains. However, surveys indicate firms are planning price increases in 2026, with economists like Karen Dynan forecasting inflation could climb to 3.3% through that year. The labour market, meanwhile, shows cracks, with private-sector indicators like ADP’s report pointing to job losses in September, even as August’s unemployment rate held at a near-full-employment 4.3%. The absence of official data, delayed by a government shutdown, further complicates the Fed’s ability to gauge these pressures. For global markets, particularly US equities like the S&P 500, this uncertainty signals potential volatility as investors await clearer signals on policy impacts.

Amid these challenges, a surge in artificial intelligence (AI) investment offers a counterbalance, boosting productivity and supporting economic growth estimated near 4% for Q3 2025, per the Atlanta Fed’s GDPNow model. Yet, Philadelphia Fed President Anna Paulson cautioned that growth rests on “a relatively narrow base,” driven largely by AI and spending among higher-income consumers. “I don’t want to step on a productivity boom,” she said, reflecting optimism about AI’s long-term potential but concern over its concentrated impact. This dynamic poses risks for sustained demand, as “some business contacts are wondering where future demand will come from.” For global investors, this suggests opportunities in tech-heavy indices like the Nasdaq, but also caution, as reliance on a few growth drivers could amplify market sensitivity to policy shifts or demand slowdowns.

The Fed’s recent quarter-point rate cut in September, bringing the benchmark rate to 3.75%-4.00%, reflects a strategy to balance job market risks while keeping inflation in check. Investors anticipate another cut in October and possibly December, but policymakers are divided. Some, like Fed Governor Christopher Waller, prioritize protecting jobs, noting, “You can’t have negative job growth and 4% GDP growth...Either the labor market rebounds to match the GDP growth, or GDP growth is going to pull back.” Others worry inflation, projected at 2.5% through 2026 by NABE forecasters, could become unanchored, especially if tariff costs are passed to consumers. The delayed September jobs report and upcoming consumer price data on October 24 will be critical for the Fed’s next steps. For global capital markets, particularly US dollar-based assets like the USD/SGD forex pair, the Fed’s cautious approach suggests steady but restrained rate adjustments, with potential upside risks if inflation accelerates.