Federal Reserve Chair Jerome Powell spoke recently about a noticeable slowdown in U.S. hiring. He suggested this could lead to more interest rate cuts this year. In a speech in Philadelphia, Powell mentioned that even without recent government data—due to the shutdown—the job market and inflation outlook seemed stable since their last meeting in September, where rates were lowered for the first time this year.
During that September meeting, Fed officials pointed out the likelihood of two more rate cuts this year and another in 2026. Cutting rates can decrease borrowing costs for things like mortgages and car loans, helping stimulate economic growth. Powell shared his views at a gathering of business economists.
He emphasized the Fed’s increasing concern about the job market over inflation. Notably, inflation is currently at 2.9%, impacted by tariffs, but he indicated that there aren’t other significant inflationary pressures to worry about.
Powell stated, “Rising downside risks to employment have shifted our assessment of the balance of risks.” Experts have noted that Powell’s remarks have solidified expectations for cuts starting at the upcoming meeting on October 28-29. Michael Feroli, chief economist at JPMorgan Chase, described his comments as strong confirmation of ongoing rate cuts.
Powell also hinted at the possibility of halting the reduction of the Fed’s $6.6 trillion balance sheet, where the bank has been letting a significant amount of Treasuries and mortgage-backed securities mature each month. Such a halting might lower borrowing costs over time. Economist projections showed a slight decrease in Treasury yields after his remarks.
In his speech, Powell defended the Fed’s earlier purchases of long-term Treasury bonds and mortgage securities during the pandemic. He argued that these moves aimed to lower long-term rates and support the economy. However, this approach has faced criticism from various quarters, including Treasury Secretary Scott Bessent. Critics argue those monetary policies exacerbated inequality by inflating the stock market without meaningfully benefiting the broader economy.
Interestingly, many have noted that the Fed might have enacted those purchases for too long, which contributed to higher inflation starting in late 2021. Powell acknowledged this concern, saying, “With the clarity of hindsight, we could have—and perhaps should have—stopped asset purchases sooner.” Yet he cautioned that earlier action might not have substantially altered the inflation trajectory.
He added that such purchases were crucial to prevent a market breakdown that could potentially lead to increased interest rates. Another point Powell discussed was a recent bipartisan effort in the Senate aimed at stopping the Fed from paying interest on bank reserves held at the central bank. This measure was defeated, garnering mixed support from both parties.
Powell argued that eliminating interest payments would hinder the Fed’s ability to control rates effectively. The Fed adjusts short-term interest rates to manage inflation and encourage or restrict borrowing as necessary. Understanding how these decisions impact everyday consumers is vital as we move forward in an uncertain economic landscape.
As the economy continues to change, keeping an eye on these developments will be important for businesses and consumers alike.
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