Fed’s Powell: US Hiring Slows, Indicates Need for Rate Cuts

Federal Reserve Chair Jerome Powell addressed a concerning trend in U.S. hiring during a speech in Philadelphia. He highlighted that the slowdown in employment growth raises risks for the nation’s economy. This situation suggests that the Federal Reserve may implement two additional interest rate cuts within the year.

Key Insights from Powell’s Remarks

• Hiring Slowdown: Recent data indicates a notable reduction in job creation, prompting concerns regarding the overall economic outlook.
• Interest Rate Cuts: The Fed is expected to lower its key interest rate twice more this year, following a previous reduction in September.
• Inflation Concerns: Powell noted inflation, as measured by the Fed’s preferred metrics, has risen to 2.9%. However, he indicated that broader inflationary pressures are absent.
• Balance Sheet Changes: The Fed may halt its strategy of reducing its $6.6 trillion balance sheet, which currently involves letting $40 billion in Treasuries and mortgage-backed securities mature each month.

Outlook for Employment and Inflation

Despite the recent federal government shutdown impeding official economic data collection, Powell asserted that the employment and inflation landscape remains largely unchanged since September. He underscored that the Fed is increasingly concerned about the job market compared to its mandate to manage inflation.

Criticism of Fed Policies

Powell defended previous Fed practices, particularly the purchase of long-term Treasury bonds and mortgage-backed securities made during the pandemic. Critics, including Treasury Secretary Scott Bessent, argue these actions worsened economic inequality and fueled the stock market without significant benefits to the broader economy. Powell acknowledged that in hindsight, earlier cessation of these purchases might have been prudent.

Impact on Interest Rates

The anticipated rate reductions could lead to lower borrowing costs for mortgages and business loans. However, Powell emphasized that rising risks in the job market necessitate these adjustments to maintain economic stability.

As the Fed prepares for possible changes, the market continues to watch closely for signs of how policy might evolve in response to these economic challenges.