The direction of the U.S. economy remains uncertain, but certain indicators are offering insight into its trajectory. Among the most notable signals are statements from Federal Reserve Chair Jerome Powell and financial performance trends at Starbucks, both of which point to underlying economic pressures.
The Federal Reserve faces a complex balancing act. Its dual mandate—to foster maximum sustainable employment and maintain stable prices—has become increasingly difficult to fulfill amid conflicting economic signals. The central bank primarily uses the federal funds rate to influence economic activity: raising rates to curb inflation or lowering them to stimulate growth. However, with inflation still above target and signs of labor market softening, policymakers are navigating a precarious path.
In a speech on September 23, Powell noted that while inflation has declined from its 2022 peak, it remains above the Fed’s 2% long-term objective. The Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, rose 2.7% year-over-year in August, up from 2.3% in August 2024. Core PCE, which excludes food and energy, climbed to 2.9%, indicating persistent underlying price pressures. Powell attributed part of the recent inflation uptick to higher tariffs, particularly on goods, suggesting that trade policy is now impacting consumer prices.
Despite inflationary risks, the Fed cut interest rates by 25 basis points on September 17, likely in response to weakening labor data. However, this move could risk reigniting inflation, especially as the effects of tariffs continue to ripple through the economy. Projections from the September Federal Open Market Committee meeting suggest PCE inflation will end the year between 2.9% and 3.0%, with core inflation ranging from 3.0% to 3.2%—a trend that, while not alarming, is moving in the wrong direction.
Meanwhile, corporate performance offers another lens into economic health. Starbucks, a bellwether for consumer spending, reported declining profitability despite modest revenue growth. For the 12 months ending June 29, 2025, earnings per share stood at $2.32, down from $3.32 in the same period ending September 29, 2024. Total revenue increased slightly to $36.7 billion from $34.3 billion, but gross profit fell sharply from $9.7 billion to $8.7 billion. This decline coincided with a 6% rise in cost of goods sold, reaching $28.0 billion.
In response, Starbucks announced plans to eliminate approximately 900 non-retail roles and leave many positions unfilled. The company also intends to reduce its North American store count by 1%, bringing the total to around 18,300 locations. These moves reflect efforts to manage rising operational costs, which are increasingly influenced by tariff-related price increases.
Together, the Fed’s cautious monetary stance and Starbucks’ cost-driven profit squeeze suggest that inflationary pressures—particularly from trade policy—are embedding into the broader economy, even as growth shows signs of slowing.
— news from Forbes
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Two Economic Warning Signs: Fed Chair Powell And Starbucks
Where is the economy going? Largely in an unknowing direction, but there are some interesting weathervanes on display. n nThe Fed Tries To Chart The Course n nThe Federal Reserve is in a difficult position, which makes taking action particularly difficult for them. The reason for the Fed’s tentative steps is its two primary and potentially clashing mandates — maximum sustainable employment and price stability. Put differently, the central bank is supposed to direct monetary policy, so inflation doesn’t race out of control, and the country doesn’t experience large bouts of joblessness. n nTheir central tool is setting the benchmark federal funds rate, the cost of one bank borrowing overnight from another without having to front collateral. The most common tradeoff is raising interest rates to slow the economy and reduce inflation or, if jobs seem in trouble, lowering interest rates to increase economic activity. At times like the present, when inflation is rising and the labor market is slowing, the dual mandates are sitting on a see-saw. n n“Inflation has eased significantly from its highs of 2022 but remains somewhat elevated relative to our 2 percent longer-run goal,” said Fed Chair Jerome Powell in a speech on September 23. Personal Consumption Expenditures (PCE), the central bank’s preferred measure of inflation, rose to 2.7% year-over-year in August. That compared to 2.3% in August 2024. Core PCE, without the volatile categories of food and energy, rose 2.9% year-over-year, which is even worse and more concerning. n n“Goods prices, after falling last year, are driving the pickup in inflation,” Powell said. “Incoming data and surveys suggest that those price increases largely reflect higher tariffs rather than broader price pressures.” The administration’s plans are finally settling in, hitting consumers where they can see the changes and feel them in their personal cost of living. n nMORE FOR YOU n nInflation might keep rising. During the September meeting of the Federal Open Market Committee, during which the organization cut the interest rates, the central tendency projection of where inflation would be by the end of this year was between 2.9% and 3.0%. Core PCE inflation, between 3.0% and 3.2%. Not a disaster but heading in the wrong direction. n nThe Fed may have seen the quarter-point interest rate cut on September 17 as necessary because the labor market is flagging. Nevertheless, it is a dangerous move because it could potentially help heat up inflation. There’s already evidence that is happening, especially as the reaction to the tariffs has finally started to filter into the greater economy. Higher cuts would likely put upward pressure on inflation. n nA Jolt Of Java n nStarbucks is not sitting quietly with a latte or cup of tea. The company is worried. Public data pulled together by S&P Global Market Intelligence shows that while the brand making money, it’s a lot less than in the 12 months ending June 2025 — the fiscal year doesn’t close out until the end of this month — the 12 months ending June 29, 2025, had earnings per share of $2.32. Compare that to the $3.32 for the 12-month ending September 29, 2024, it was $3.32. n nThe total revenue was $36.7 billion ending August 2025 compared to $34.3 billion ending September 2024, a gain of 1.3%. But gross profit was down sharply from $9.7 billion to $8.7 billion. Cost of goods was up sharply from $26.4 billion to $28.0 billion, a 6% increase. n nThe company plans to cut about 900 current non-retail positions and also “close many open positions,” so no hiring into those places. n nStarbucks will also cut 1% of company-operated stores in North America, ending with about 18,300. n nRevenues are fairly flat and costs of producing and selling coffee were up 6%. It smells like tariffs area settling in for the fall.