Institution: Powell faces a "delicate balance" between employment and prices at the end of his term

Institutional assessment of the U.S. January CPI report indicates that the January CPI increased by 2.4% year-over-year, below both the previous value and market expectations; excluding volatile food and energy prices, core CPI rose by 2.5% YoY, in line with expectations. Earlier this week, the non-farm payroll report showed that January employment growth exceeded expectations and the unemployment rate dropped to 4.3%. Although slowing inflation and steady employment are positive signs, the Federal Reserve faces a delicate balance in the final months of Chair Powell’s eight-year term: it needs to curb inflation without harming the labor market. Aggressive rate hikes helped combat price surges in 2022, but as inflation recedes and the job market cools, the Fed has cut interest rates by nearly 2 percentage points since summer 2024 and paused in January. With signs of easing price pressures increasing, economists generally expect inflation to decline further by 2026.