Powell Signals U.S. Hiring Slowdown Indicates Need for Continued Rate Cuts in Economy
The Federal Reserve Chair, Jerome Powell, indicated a significant slowdown in U.S. hiring, suggesting the need for continued interest rate cuts. This move is essential for sustaining economic stability. Powell’s announcement confirmed expectations that the Federal Reserve would reduce rates twice more before the year’s end.
Federal Reserve’s Interest Rate Strategy
During a recent speech in Philadelphia, Powell emphasized stable employment and inflation outlook, despite the ongoing federal government shutdown. At the September meeting, the Fed reduced its interest rate for the first time this year. Further rate reductions are anticipated as part of an adjustment strategy predicted to extend into 2026.
Impact of Rate Reductions
- Lower borrowing costs for mortgages, car loans, and business loans.
- Potential slight reduction in Treasury securities yields.
Powell addressed the National Association of Business Economics, highlighting the central bank’s concerns about the job market. A lack of broad inflationary pressures exists outside of tariffs, contributing to an inflation measure of 2.9%.
Economic Outlook and Government Criticism
Economists from JPMorgan Chase and BMO Capital Markets interpreted Powell’s remarks as confirmation of imminent rate cuts, with expectations solidifying for the upcoming meeting on October 28-29.
Powell discussed the Fed’s plan to cease shrinking its $6.6 trillion balance sheet. This move follows a period of asset maturity without replacement, previously aimed at reducing longer-term interest rates during the pandemic.
Response to Pandemic Measures
Powell defended past Fed practices, including significant Treasury bond and mortgage-backed securities purchases. These measures aimed to support the economy but faced criticism from Treasury Secretary Scott Bessent and others for exaggerating wealth inequality. Powell acknowledged these concerns, admitting the Fed might have ended purchases sooner.
The Fed increased borrowing costs sharply in response to rising inflation, regretting some delayed decisions. However, Powell maintained that early cessation of asset purchases would not have substantially altered the COVID-era inflation trajectory.
Legislative Developments and Monetary Policy
Powell addressed legislative attempts to prohibit the Fed from paying interest on bank reserves. The proposal was recently defeated in the Senate by a wide margin but had bipartisan support. The Fed’s ability to pay interest on reserves is crucial for maintaining control over interest rates, ensuring the effective execution of monetary policy.
