Federal Reserve Chairman Powell says the bank will reduce its staff by 10%.
Jerome Powell has asked the Federal Reserve to begin reducing jobs. In a memo obtained by Bloomberg, Powell stated that the central bank would cut its workforce by 10% over the next two years.
This means reducing the company's staff of about 24,000 employees to less than 22,000, using what he called a 'voluntary delayed retirement' offer for some older employees eligible for retirement by 2027.
Powell wrote, 'Experience here and elsewhere suggests that it is healthy for any organization to periodically take a fresh look at its personnel and resources.'
He said this is not the first time the Federal Reserve has made such changes, adding that leadership throughout the system has been tasked with finding ways to integrate roles and update workflows and 'ensure that we are of appropriate size and capable of fulfilling our legal mandate.'
This planned reduction comes at a time when the Trump administration, which has returned to the White House, is demanding all federal agencies cut costs. Elon Musk, who was appointed to head the Office of Government Efficiency, has led the White House campaign to reduce expenses.
Elon has previously described the Federal Reserve as 'ridiculously bloated.' Powell did not mention Musk or the department by name, but the consensus is clear.
Powell warns of more difficult economic conditions ahead.
During the Thomas Laubach Research Conference in Washington, Powell also spoke about current economic transformations and their impact on future Federal Reserve policy. He warned that long-term interest rates may remain higher than what markets have been used to over the past decade.
Powell said in prepared remarks, 'We may enter a period of more frequent, and possibly more persistent, supply shocks, which is a challenging scenario for the economy and central banks.' He noted that the central bank's job would be harder in an environment where inflation could swing more wildly than it did during the second decade of the 21st century.
The Federal Reserve kept interest rates near zero for seven years after the financial crisis of 2008, but those days are over. Powell clarified that those extremely low rates will not return anytime soon.
Since December 2024, the Federal Reserve has kept the standard lending rate in a range between 4.25% and 4.5%, currently at about 4.33%.
Although Powell did not directly refer to the tariffs imposed by Donald Trump in his remarks, he recently said that tariffs could lead to slower growth and rising inflation.
However, he admitted that the overall impact is difficult to measure - especially since Trump just halted the most extreme tariffs during the extended ninety-day negotiation period.
This uncertainty leaves the Federal Reserve stuck between trying to calm inflation and avoiding a labor market collapse. So far, Powell has shown no willingness to cut interest rates again after last year's full percentage point reduction.
The Federal Reserve is reopening its monetary policy review after the failures of 2020.
In addition to interest rates and staffing, Powell also stated that the Federal Reserve is reopening a review of its policy framework, a process that guides how the bank makes decisions. This review, which was last completed in 2020, will cover how the Federal Reserve communicates its future plans, as well as what it missed last time.
The last review led to the adoption of a flexible average inflation target. This target was supposed to allow inflation to rise above 2% for a period to help boost employment. However, this plan did not last long. When the COVID-19 pandemic struck and prices began to rise rapidly, the Federal Reserve had to start raising interest rates.
Powell now says that the new review will consider how the Federal Reserve assesses inflation shortfalls and job growth, especially when it falls below target levels. He acknowledged making mistakes. In 2021, Powell and other officials described rising prices as 'transitory,' blaming the pandemic's effects. But this judgment backfired.
Worse still, some current Federal Reserve officials have stated that the 2020 framework did not even influence their decisions. They kept interest rates low even when inflation was clearly out of control, but not due to any formal rules; they simply downplayed what was happening.
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