Jerome Powell avoided the word stagflation in his Rhode Island speech this week, but the substance was hard to miss. “Job gains have slowed, and the downside risks to employment have risen. At the same time, inflation has risen recently and remains somewhat elevated,” the Federal Reserve Chairman said at the Greater Providence Chamber of Commerce. The juxtaposition of weakening labour data and sticky prices captured the essence of what markets fear: the early signs of stagflation.
The Federal Open Market Committee cut the policy rate by 25 basis points on 17 September, despite inflation readings holding stubbornly above the 2% target. The Fed’s preferred measure, the core PCE index, rose 2.9% last month. Headline inflation moved up to 2.7%. By the Fed’s own scorecard, the goal has not been met in almost five years. Yet Powell described the central bank’s pandemic-era actions as a success in avoiding deeper economic damage, even though his 2020 assurances that inflation would prove “transitory” proved wrong.
Dr Komal Sri-Kumar, president of Sri-Kumar Global Strategies and a long-time adviser to multinational investors and sovereign wealth funds, said Powell’s framing was selective. “SriKonomics warned as long ago as June 2022 of the stagflation risk and how to prevent it from becoming reality. What Powell did not admit is that the Fed’s own missteps helped create this mess, and that he and his colleagues missed several warning signals along the way.”
Powell pointed to a weakening labour market as the reason for restraint, but the data is not unequivocal. Jobless claims last week came in at 218,000, lower than expected, suggesting resilience. Equities fell after Powell’s remarks, with investors revising expectations for rapid-fire rate cuts. The possibility of a government shutdown later this month only adds to the uncertainty.
“SriKonomics has been consistent on one point: there is no such thing as mild stagflation,” Dr Sri-Kumar said. “Once it sets in, it feeds on itself. Inflation lingers, growth weakens, and policy mistakes multiply.”
The Fed may be trying to walk a tightrope between political pressure and institutional credibility, but for investors the signal is clear. Expectations of easy money are fading, while the costs of policy drift are coming into sharper view.
Support independent community journalism. Support The Indian Sun.
Follow The Indian Sun on X | Instagram | Facebook
Support Independent Community Journalism
Dear Reader,The Indian Sun exists for one reason: to tell stories that might otherwise go unheard.
We report on local councils, state politics, small businesses and cultural festivals. We focus on the Indian diaspora and the wider multicultural community with care, balance and accountability. We publish in print and online, send regular newsletters and produce video content. We also run media training programs to help community organisations share their own stories.
We operate independently.
Community journalism does not have the backing of large media corporations. Advertising revenue fluctuates. Platform algorithms change. Costs continue to rise. Yet the need for credible, grounded reporting in a multicultural Australia has never been greater.
When you support The Indian Sun, you support:
• Independent reporting on issues affecting migrant communities
• Coverage of local and state decisions that shape daily life
• A platform for small businesses and community groups
• Media training that builds skills within the community
• Journalism accountable to readers
We cannot cover everything, but we work to cover what matters.
If you value thoughtful reporting that reflects Australia’s diversity, we invite you to contribute. Every donation helps us maintain the quality and consistency of our work.
Please consider making a contribution today.
Thank you for your support.
The Indian Sun Team
