Jay Powell Signals Support for More Rate Cuts

Powell notes increased downside risks to employment, signaling a potential rate cut.
Federal Reserve may reduce borrowing costs further at the upcoming meeting.
Long-term inflation expectations remain stable at the Fed’s 2% target.
Powell addresses the future of quantitative tightening amidst economic concerns.

Federal Reserve Chair Jay Powell has indicated that further interest rate cuts may be on the horizon as signs of a cooling U.S. job market emerge. Powell’s remarks in Philadelphia this week suggest that the central bank could take action soon, potentially cutting borrowing costs to address the rising risks to employment. These comments come amidst concerns about labor market stability, which are becoming increasingly evident.

Fed’s Assessment of the Job Market

Table of Contents

Jay Powell has expressed concerns over the current state of the U.S. labor market, noting that signs of distress are growing. According to Powell, the downside risks to employment have increased, suggesting that the job market is weakening.

Despite the Bureau of Labor Statistics data being delayed due to a government shutdown, Powell stated that internal Federal Reserve research and other private labor market measures provide sufficient evidence of a cooling job market.

“The available evidence indicates that both layoffs and hiring remain low,” Powell said during his speech. He added that both households’ perceptions of job availability and companies’ views on hiring difficulties are trending downward. These factors point to a job market that is not as robust as it once was, which may prompt further monetary policy adjustments.

Interest Rate Cuts on the Horizon

Powell’s statements signal a potential shift in the Federal Reserve’s stance on interest rates. The Fed recently reduced borrowing costs for the first time since December, lowering the federal funds target range to 4-4.25 percent. With the current signs of job market cooling, Powell indicated that the central bank could lower rates again at its upcoming meeting later this month.

This marks a shift towards a more dovish approach, as Powell acknowledges that the economy may need additional support. The next Federal Reserve meeting is scheduled for October 28-29, with many investors betting on another quarter-point rate cut. Powell’s comments are seen as a sign that the Fed is ready to take steps to support economic stability amid a slowing labor market.

Inflation Expectations and the Fed’s Mandate

Even with concerns about a cooling job market, Powell emphasized that long-term inflation expectations remain in line with the Fed’s 2 percent target. While tariffs introduced by the Trump administration have led to price increases on some imported goods, Powell noted that there is no broad-based inflationary pressure across the economy.

“The longer-term inflation expectations are aligned with our 2 percent goal,” Powell stated. He reiterated that the Federal Reserve’s dual mandate involves both fostering full employment and ensuring stable inflation. Therefore, the central bank will continue to monitor economic indicators closely and adjust its policies accordingly to meet these objectives.

Future of Quantitative Tightening

Along with potential interest rate cuts, Powell also addressed the future of the Fed’s quantitative tightening (QT) operations. He mentioned that the central bank might halt these operations in the coming months. This would involve ending the process where the Fed reduces its balance sheet by allowing assets purchased during the crisis to mature without being replaced.

Powell explained that demand for reserves had increased due to the growth of the banking system and the broader economy. He clarified that the size of the Fed’s balance sheet is unlikely to return to pre-pandemic levels, acknowledging that the crisis-era policies had significantly altered the landscape. Despite some concerns over the Fed’s balance sheet size, Powell reassured that the central bank remains vigilant in monitoring economic indicators.

Powell’s remarks signal a careful approach to managing U.S. economic stability. The Fed is prepared to make further adjustments to interest rates and other policy tools in response to weakening job market conditions. As the Federal Reserve continues to navigate these challenges, the balance between employment and inflation will remain a key focus for future policy decisions.

Stay Ahead of the Market with Benzinga Pro!

Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders: