Federal Reserve Chair Jerome Powell warned on Tuesday that a significant slowdown in hiring poses increasing risks to the U.S. economy, suggesting that additional interest rate reductions are likely before year-end. Speaking at an event hosted by the National Association of Business Economics in Philadelphia, Powell noted that despite the federal government shutdown disrupting data collection, the economic outlook for employment and inflation remains largely unchanged since the Fed’s September meeting—when it initiated its first rate cut of the year. n nOfficials at that meeting projected two further rate reductions in 2025 and one more in 2026. Lower borrowing costs could ease financial pressure on consumers and businesses, encouraging home and auto purchases, business expansion, and new hiring. n n”Maintaining elevated rates carries growing risks for the labor market. Job growth is currently below what we’d expect given the pace of economic activity,” observed Scott Helfstein, Global X’s head of investment strategy, responding to Powell’s remarks. “Rate cuts in October and December still appear probable, though investors should remain open to various scenarios as the Fed keeps its options flexible.” n nThe next monetary policy decision is scheduled for October 29, followed by a final 2025 meeting on December 10. n nPowell reiterated concerns he previously expressed—that the Fed is now somewhat more focused on employment risks than on inflation, its other statutory mandate. While tariffs have pushed the central bank’s preferred inflation gauge to 2.9%, he emphasized that outside of trade duties, there are no widespread inflationary forces threatening sustained price increases. n n”The rising downside risks to employment have altered our evaluation of the overall risk balance,” Powell stated. n nHe also indicated that the Fed may soon halt the reduction of its $6.6 trillion balance sheet. Since 2022, the central bank has allowed about $40 billion in Treasury and mortgage-backed securities to mature monthly without reinvestment. Ending this runoff could influence long-term interest rates. n nIn addition, Powell devoted much of his speech to defending the Fed’s pandemic-era bond-buying program, which involved purchasing long-term Treasuries and mortgage-backed securities to stabilize financial markets and support economic activity. n nThese actions have faced strong criticism, notably from Treasury Secretary Scott Bessent and potential successors to Powell under a future administration. Bessent argued earlier this year that the bond purchases exacerbated wealth inequality by inflating asset prices without delivering broad economic gains. n nCritics have also contended that the Fed extended the program too long, maintaining low rates even as inflation surged in late 2021. The central bank eventually ended asset purchases in 2021 and sharply raised rates to curb rising prices. n n”With the benefit of hindsight, we could have—and perhaps should have—ended asset purchases earlier,” Powell acknowledged. “Our decisions at the time were meant to act as insurance against severe economic downturns.” n nHe added that the purchases were crucial to preventing a collapse in the Treasury market, which could have triggered a sharp rise in borrowing costs across the economy.
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Fed Chair Powell says hiring slowdown poses economic risks, hinting at more interest rate cuts
Federal Reserve Chair Jerome Powell on Tuesday emphasized that a sharp slowdown in hiring poses a growing risk to the U.S. economy, a sign that the central bank will likely cut its key interest rate twice more this year. n nPowell, who spoke today before the National Association of Business Economics in Philadelphia, said that despite the federal government shutdown cutting off official economic data, “the outlook for employment and inflation does not appear to have changed much since our September meeting,” when the Fed reduced its key rate for the first time this year. n nFed officials at the September meeting also forecast that the central bank would reduce its rate twice more this year and once in 2026. Lower rates from the Fed could reduce borrowing costs for consumer and business loans, making it cheaper for businesses to expand operations and hire new workers, and for Americans to buy houses, autos and other items. n n”Holding rates higher presents risks to the job market. Job creation is below trend given the pace of economic growth,” noted Scott Helfstein, head of investment strategy at investment firm Global X, in an emailed response to Powell ‘s comments. “The Fed is still likely to cut rates in October and December, but investors should be prepared for a range of outcomes as Powell is trying to leave all options open.” n nThe Fed ‘s next rate decision will be made at its Oct. 29 meeting. Following that, the central bank has one more rate decision meeting scheduled in 2025, set for Dec. 10. n nPowell reiterated a message he first delivered after the September meeting, when he signaled that the Fed is slightly more worried about the job market than its other congressional mandate, which is to keep prices stable. Tariffs have lifted the Fed ‘s preferred measure of inflation to 2.9%, he said, but outside the duties there aren ‘t “broader inflationary pressures” that will keep prices high. n n”Rising downside risks to employment have shifted our assessment of the balance of risks,” he said. n nPowell also said that the central bank may soon stop shrinking its roughly $6.6 trillion balance sheet. The Fed has been allowing roughly $40 billion of Treasuries and mortgage-backed securities to mature each month without replacing them. The shift could weigh on longer-term Treasury interest rates. n nSeparately, Powell spent most of his speech defending the Fed ‘s practice of buying longer-term Treasury bonds and mortgage-backed securities in 2020 and 2021, which were intended to lower longer-term interest rates and support the economy during the pandemic. n nYet those purchases have come under a torrent of criticism from Treasury Secretary Scott Bessent, as well as some of the candidates floated by the Trump administration to replace Powell when his term as Chair ends next May. n nBessent said in an extended critique published earlier this year that the huge purchases of bonds during the pandemic worsened inequality by boosting the stock market, without providing noticeable benefits to the economy. n nOther critics have long argued that the Fed kept implementing the purchases for too long, keeping interest rates low even as inflation began to spike in late 2021. The Fed beginning in 2021 stopped the purchases and then sharply boosted borrowing costs to combat inflation. n n”With the clarity of hindsight, we could have—and perhaps should have—stopped asset purchases sooner,” Powell said. “Our real-time decisions were intended to serve as insurance against downside risk.” n nPowell also said the purchases were intended to avoid a breakdown in the market for Treasury securities, which could have sent interest rates much higher.