Powell: Hiring Slowdown Means Rate Cuts10/15 06:11

   A sharp slowdown in hiring poses a growing risk to the U.S. economy, Federal 
Reserve Chair Jerome Powell said Tuesday, a sign that the Fed will likely cut 
its key interest rate twice more this year.

   WASHINGTON (AP) -- A sharp slowdown in hiring poses a growing risk to the 
U.S. economy, Federal Reserve Chair Jerome Powell said Tuesday, a sign that the 
Fed will likely cut its key interest rate twice more this year.

   Powell said in a speech in Philadelphia that despite the federal government 
shutdown cutting off official economic data, "the outlook for employment and 
inflation does not appear to have changed much since our September meeting," 
when the Fed reduced its key rate for the first time this year.

   Fed officials at that meeting also forecast that the central bank would 
reduce its rate twice more this year and once in 2026. Lower rates from the Fed 
could reduce borrowing costs for mortgages, car loans, and business loans. 
Powell spoke before a meeting of the National Association of Business Economics.

   Powell reiterated a message he first delivered after the September meeting, 
when he signaled that the Fed is slightly more worried about the job market 
than its other congressional mandate, which is to keep prices stable. Tariffs 
have lifted the Fed's preferred measure of inflation to 2.9%, he said, but 
outside the duties there aren't "broader inflationary pressures" that will keep 
prices high.

   "Rising downside risks to employment have shifted our assessment of the 
balance of risks," he said.

   Economists said Powell's remarks solidified expectations for further rate 
cuts, starting at its next meeting Oct. 28-29.

   "While there was little doubt the (Fed) was angled to cut rates at its next 
meeting, today's remarks were strong confirmation of that expectation," Michael 
Feroli, chief U.S. economist at JPMorgan Chase, said in a note to clients.

   Powell also said that the central bank may soon stop shrinking its roughly 
$6.6 trillion balance sheet. The Fed has been allowing roughly $40 billion of 
Treasuries and mortgage-backed securities to mature each month without 
replacing them.

   "We may approach that point in coming months," Powell said.

   The shift could slightly lower borrowing costs over time. Economists at BMO 
Capital Markets estimated that the yields on Treasury securities ticked down 
slightly after Powell's remarks.

   Separately, Powell spent most of his speech defending the Fed's practice of 
buying longer-term Treasury bonds and mortgage-backed securities in 2020 and 
2021, which were intended to lower longer-term interest rates and support the 
economy during the pandemic.

   Yet those purchases have come under a torrent of criticism from Treasury 
Secretary Scott Bessent, as well as some of the candidates floated by the Trump 
administration to replace Powell when his term as Chair ends next May.

   Bessent said in an extended critique published earlier this year that the 
huge purchases of bonds during the pandemic worsened inequality by boosting the 
stock market, without providing noticeable benefits to the economy.

   Other critics have long argued that the Fed kept implementing the purchases 
for too long, keeping interest rates low even as inflation began to spike in 
late 2021. The Fed beginning in 2021 stopped the purchases and then sharply 
boosted borrowing costs to combat inflation.

   "With the clarity of hindsight, we could have--and perhaps should 
have--stopped asset purchases sooner," Powell said. "Our real-time decisions 
were intended to serve as insurance against downside risk."

   Yet Powell said that moving earlier would not have prevented the COVID-era 
inflation spike: "Stopping sooner could have made some difference, but not 
likely enough to fundamentally alter the trajectory of the economy."

   Powell also said the purchases were intended to avoid a breakdown in the 
market for Treasury securities, which could have sent interest rates much 
higher.

   The Fed chair also addressed a move by a bipartisan group of senators to 
stop the central bank from paying interest on the cash reserves banks park at 
the Fed. A measure to prevent the Fed from doing so was defeated in the Senate 
last week by the lopsided vote of 83-14.

   Still, it garnered support from both parties, including Republican senators 
Rand Paul from Kentucky and Ted Cruz from Texas, as well as Massachusetts 
Democratic Sen. Elizabeth Warren.

   Powell said that without the ability to pay interest on reserves, the Fed 
"would lose control over rates" and wouldn't be able to carry out its mission. 
The Fed lifts the short-term interest rate it controls when it wants to cool 
borrowing and spending and slow inflation, while it cuts the rate to encourage 
borrowing, growth, and hiring.