Fed Chair Powell Signals Potential Rate Cuts Amid Slowing Job Growth

Federal Reserve Chair Jerome Powell has highlighted a significant slowdown in hiring as a growing risk to the U.S. economy, suggesting that the central bank may implement further interest rate cuts. Speaking in Philadelphia, Powell noted that despite the federal government shutdown affecting official economic data, the outlook for employment and inflation remains largely unchanged since the Fed's September meeting, during which the key interest rate was reduced for the first time this year.

At that meeting, Fed officials projected two additional rate cuts within the year and one in 2026. Lower interest rates from the Fed could decrease borrowing costs for mortgages, car loans, and business loans. Powell emphasized that the rising downside risks to employment have shifted the Fed's assessment of the balance of risks.

Economists interpret Powell's remarks as reinforcing expectations for further rate cuts, potentially starting at the next meeting on October 28-29. Michael Feroli, chief U.S. economist at JPMorgan Chase, stated that Powell's comments strongly confirm the anticipation of upcoming rate reductions.

Powell also indicated that the Fed may soon halt the reduction of its approximately $6.6 trillion balance sheet, a process involving the monthly maturation of about $40 billion in Treasuries and mortgage-backed securities without replacement. He mentioned that this point might be approached in the coming months.

Additionally, Powell defended the Fed's previous practice of purchasing longer-term Treasury bonds and mortgage-backed securities during 2020 and 2021, aimed at lowering long-term interest rates and supporting the economy during the pandemic. He acknowledged that, in hindsight, the Fed could have ceased asset purchases sooner but maintained that these decisions were intended to mitigate downside risks at the time.

Addressing legislative concerns, Powell commented on a bipartisan Senate proposal to prevent the Fed from paying interest on bank reserves held at the central bank. He warned that without this ability, the Fed would lose control over rates and be unable to fulfill its mission effectively.