Donald Trump gestures with Jerome Powell, his nominee to become chairman of the U.S. Federal Reserve at the White House in Washington, U.S., November 2, 2017. REUTERS/Carlos Barria/File Photo
Federal Reserve Chair Jerome Powell said Tuesday that he is more concerned with labor market weakness than with inflation, which is why he backed the decision to lower interest rates last week, CNBC reports.
The rate cut came, CNBC explains, because the "supply and demand of workers is waning at the same time that near-term impact from tariffs has pushed inflation higher."
In remarks he made in a speech to business leaders in Providence, Rhode Island, the Fed Chair said that “Near-term risks to inflation are tilted to the upside and risks to employment to the downside — a challenging situation. Two-sided risks mean that there is no risk-free path.”
In layman's terms, CNBC says, Powell's description is consistent with "stagflation, in which growth slows and inflation is high." And though it's less severe than in the 70s and 80s, it has "presented a policy challenge for the Fed."
“The increased downside risks to employment have shifted the balance of risks to achieving our goals,” Powell said. “This policy stance, which I see as still modestly restrictive, leaves us well positioned to respond to potential economic developments.”
Powell also pointed to a "marked slowdown" in supply and demand in the labor market, saying "the downside risks to employment have risen."
Inflation, which still remains stubborn thanks to Trump's tariffs, still remain a concern, too, Powell says.
“Uncertainty around the path of inflation remains high,” he said. “We will carefully assess and manage the risk of higher and more persistent inflation. We will make sure that this one-time increase in prices does not become an ongoing inflation problem.”