FILE PHOTO: U.S. Federal Reserve Chair Jerome Powell speaks during a press conference, following the issuance of the Federal Open Market Committee's statement on interest rate policy, in Washington, D.C., U.S., September 17, 2025. REUTERS/Elizabeth Frantz/File Photo

By Howard Schneider

PHILADELPHIA (Reuters) -Federal Reserve Chair Jerome Powell on Tuesday delivers his last scheduled remarks before the Fed's next meeting with the economy enjoying stronger-than-expected growth and a recent jump in productivity, but still adjusting to tariff and immigration policies that economists worry could lead to both higher inflation and higher unemployment.

Challenging for a central bank responsible for keeping inflation low and employment as high as possible, Powell and his colleagues are also facing a drought of official data amid a U.S. government shutdown that has delayed the September jobs report and other key statistics. An update on consumer prices is now scheduled for October 24, before the Fed's October 28-29 meeting.

Investors expect the Fed to lower its benchmark interest rate by a quarter-of-a-percentage point to the 3.75%-to-4.00% range, and then lower it again in December.

But the competing forces in the economy right now have become tangled, said EY-Parthenon Chief Economist Gregory Daco.

"There are conflicting forces that are affecting the US economy, in particular, with the US economy essentially being constrained by tariffs...Also by reduced immigration," Daco said at a meeting of the National Association for Business Economics conference, where Powell speaks on Tuesday. "At the same time, we're seeing a great deal of...investment on the AI front... These forces are offsetting one another, not necessarily proportionally, not necessarily at the same time, but I think it's a very interesting duel."

How fast the tension resolves into a more consistent view of the economy will be crucial for coming Fed decisions.

Policymakers are divided between those concerned that inflation remains above the Fed's 2% target and is expected to remain so through next year, and those who see the job market at risk of a fast slide.

"Something's got to give," Fed Governor Christopher Waller told CNBC last week. He noted the contradiction between economic growth estimates getting revised higher - nearing 4% for the third quarter, according to the Atlanta Fed's GDPNow model - and a job market that seems in the doldrums with a recent report from payroll processor ADP showing the economy lost jobs in September.

"You can't have negative job growth and 4% GDP growth....Either the labor market rebounds to match the GDP growth, or GDP growth is going to pull back," said Waller, who favors further rate cuts to protect the job market, but says those should come in cautious, quarter-point moves to avoid a mistake.

The Fed's quarter-point reduction in September was framed as a way to balance potential strains on the job market while still leaving rates high enough to maintain downward pressure on inflation.

In the absence of the September jobs report, officials like Waller have noted that an array of private-sector indicators have pointed to weak hiring, even if none on their own is a perfect substitute for the Bureau of Labor Statistics' monthly surveys of businesses and households.

At the same time, the last reported unemployment rate of 4.3% in August remained near what's considered full employment, and a Chicago Fed estimate of the September rate indicated it did not change much, if at all.

But coming months could prove important in understanding the impact of President Donald Trump's policies, from still-evolving tariffs to immigration restrictions to tax changes.

Surveys of corporate executives, company earnings reports, and other data have painted a consistent picture of an adaptation still underway. Firms may have absorbed much of the tariff impact so far by cutting costs or trimming profits, a dynamic economists said could be driving short-term productivity improvements while the longer-run payoff of AI investment is still developing, but also that price increases are in the pipeline for next year.

Forecasters surveyed by NABE, for example, see inflation by the Fed's preferred measure remaining at 2.5% through next year, while analysts including Karen Dynan, a Harvard University economist and senior fellow at the Peterson Institute for International Economics, see it rising even higher - in her case to around 3.3% through 2026 as tariff costs are increasingly passed along to consumers.

Given recent years of above target inflation, "I think there is a good chance inflation expectations become unanchored...and if that proves to be the case the Fed cuts - and I do expect several more - are going to be seen as a mistake," she said.

The counterargument, of a budding productivity boom that could add to growth without rising prices, can't be discounted, Philadelphia Fed President Anna Paulson told the NABE conference.

She said she is already concerned the aspects of the economy supporting growth have narrowed to a few, such as AI investment and spending among higher-income consumers.

"I don't want to step on a productivity boom," said Paulson, who described the current outlook for two more quarter-point rate cuts this year as "appropriate."

Growth continues, but rests on "a relatively narrow base," she said. "Indeed, some business contacts are wondering where future demand will come from."

(Reporting by Howard Schneider in Philadelphia; Editing by Dan Burns and Chizu Nomiyama )