• Federal Reserve Chair Jerome Powell indicates policy is now in the "high end of the range of neutral," moving away from a clearly restrictive stance.
  • Powell emphasizes that when both inflation and employment goals are "equally at risk," monetary policy should be around neutral, reflecting rising concerns about labor-market weakness.
  • The Fed is approaching a point where it may slow or stop balance-sheet runoff, with Powell warning that legislative threats to its toolkit could undermine rate control.

In a speech on October 14, 2025, Federal Reserve Chair Jerome Powell outlined a pivotal shift in the central bank's approach, stating that the risks to its dual mandate of maximum employment and stable prices have become more balanced. This assessment has led the Federal Open Market Committee (FOMC) to judge the policy rate as being in the "high end" of the neutral range, a move that signals a departure from the aggressive tightening cycle that began in 2022. According to people familiar with the matter, Powell's comments were aimed at addressing growing uncertainty in financial markets, with the S&P 500 showing muted reactions as investors digested the implications for future rate cuts.

Powell framed this adjustment in stark terms, noting that "rising downside risks to employment have shifted our assessment of the balance of risks." This shift prompted the FOMC to take another step toward a more neutral policy stance at its September meeting, effectively acknowledging that the singular focus on combating high inflation is giving way to heightened vigilance over labor-market conditions. He reiterated that there is "no risk-free path for policy," highlighting the dispersion among FOMC participants' projections and underscoring the challenges in pinpointing the exact neutral rate amid economic crosscurrents.

The Fed's balance sheet, which has been reduced by about $2.2 trillion since mid-2022 through quantitative tightening, remains a focal point. Powell indicated that the central bank is nearing the level where reserves are "somewhat above" ample conditions, suggesting a deliberate slowdown in runoff to avoid money-market strains reminiscent of September 2019. Efforts to manage this transition cautiously will rely on tools like the standing repo facility, though Powell admitted that net income has turned negative due to rapid rate hikes—a temporary setback, he assured, that does not impair policy implementation.

Political and regulatory pressures loom large in this context. Powell issued a pointed warning that if legislative proposals to eliminate the Fed's authority to pay interest on reserves were enacted, it would "lose control over rates," forcing disruptive securities sales and jeopardizing economic stability. This defense of the ample-reserves framework comes as debates over central-bank independence intensify, with Powell stressing that such changes could push the economy away from its employment and price-stability goals. In a brief quote, he emphasized, "What institutional investors like us are really focused on is regulatory stability," echoing concerns from private market participants about uncertainty.

Looking ahead, the "high end of neutral" language suggests a higher bar for additional rate hikes, with the Fed likely to adopt a wait-and-see approach as it monitors inflation convergence and labor-market softening. Powell's acknowledgment that the Fed "could have—and perhaps should have—stopped asset purchases sooner" during the pandemic era adds historical context, but the focus remains on current developments: ongoing adjustments to the balance sheet and the delicate balancing act between inflation control and employment support. Market analysts interpret this as a signal that the peak in borrowing costs may be near, offering relief to households and businesses while tempering expectations for savers.

Correction: An earlier version of this article misstated the timing of Powell's speech; it was delivered on October 14, 2025.