Jerome Powell has told the Federal Reserve to start cutting jobs. In a memo obtained by Bloomberg, Powell said the central bank will lower its workforce by 10% over the next two years.
That would mean reducing its nearly 24,000 employees to under 22,000, using what he called a “voluntary deferred resignation” offer for certain older employees who are eligible to retire by 2027.
“Experience here and elsewhere shows that it is healthy for any organization to periodically take a fresh look at its staffing and resources,” Powell wrote.
He said this isn’t the first time the Fed has made such changes and added that leadership across the system has been told to find ways to merge roles, update workflows, and “ensure that we are right-sized and able to meet our statutory mission.”
The planned reduction is happening as the Trump administration, now back in the White House, is demanding cost-cutting from every federal agency. The White House campaign to slash expenses has been led by Elon Musk, who was put in charge of the Department of Government Efficiency.
Elon previously called the Fed “absurdly overstaffed.” Powell didn’t mention Musk or the department by name, but the alignment is obvious.
Powell warns of tougher economic conditions ahead
During the Thomas Laubach Research Conference in Washington, Powell also spoke on current economic shifts and what they mean for future Fed policy. He warned that longer-term interest rates may have to stay higher than what markets had gotten used to during the previous decade.
“We may be entering a period of more frequent, and potentially more persistent, supply shocks — a difficult challenge for the economy and for central banks,” Powell said in prepared remarks. He pointed out that the central bank’s job is going to be harder in an environment where inflation could swing more wildly and unpredictably than it did during the 2010s.
The Fed held interest rates near zero for seven years after the 2008 financial crisis, but those days are over. Powell made it clear that those ultra-low rates are not coming back anytime soon.
Since December 2024, the Fed has kept its benchmark lending rate in a range between 4.25% and 4.5%, and it currently sits around 4.33%.
Although Powell did not refer directly to Donald Trump’s tariffs in his remarks, he has recently said that tariffs could lead to slower growth and higher inflation.
Still, he admitted that the overall impact is hard to measure—especially since Trump just paused the more extreme tariffs during a 90-day negotiation window.
That uncertainty leaves the Fed stuck between trying to cool inflation and not tank the labor market. So far, Powell has shown no appetite to lower rates again after the full percentage point cut last year.
Fed reopens policy review after 2020 misfires
Beyond rates and staffing, Powell also said the Fed is reopening its policy framework review, a process that guides how the bank makes decisions. This review, which was last completed in 2020, will cover how the Fed communicates future plans, as well as what it missed the last time around.
The last review led to the adoption of the flexible average inflation target. It was supposed to let inflation rise above the 2% mark for a while, to help boost employment. That plan was short-lived. When the COVID pandemic hit and prices started rising fast, the Fed was forced to start hiking rates instead.
Now, Powell says the new review will look at how the Fed evaluates shortfalls in inflation and job growth—especially when they fall below targets. He acknowledged that mistakes were made. In 2021, Powell and other officials dismissed rising prices as “transitory,” blaming the pandemic’s effects. That judgment call backfired.
Even worse, some current Fed officials have said that the 2020 framework didn’t even influence their decisions. They kept rates low even when inflation was clearly getting out of hand, but not because of any formal rulebook—they just underestimated what was happening.
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