Jerome Powell announces further rate cuts to support a weakened labor market
The Chairman of the Federal Reserve confirmed on Tuesday, October 14, that the central bank will continue its monetary easing in response to a slowing job market. During a speech to the National Association for Business Economics in Philadelphia, Jerome Powell reiterated the institution's concerns regarding the deterioration of hiring conditions, while acknowledging that the economy is generally more robust than expected. This balanced stance outlines a cautious monetary policy, where each decision will be made meeting by meeting, guided by available indicators.
A Tense Labor Market Despite a Resilient Economy
Jerome Powell presented a nuanced picture of the US economy during his October 14 remarks. While economic growth appears to be on a slightly more solid path than expected before the budget impasse, the labor market is showing concerning signs. The Fed Chair highlighted that the available data, despite the absence of official September employment statistics due to the government shutdown, suggests persistent low levels of hiring and layoffs.
Household surveys reveal a deteriorating perception of job opportunities, while companies report fewer challenges in recruiting, indicating a gradual easing of labor demand. This unusual situation, where both labor supply and demand are slowing simultaneously, creates a delicate context for the central bank. Private ADP data also showed a loss of 32,000 jobs in the private sector in September, marking the steepest decline since March 2023 and the first two consecutive months of job losses since 2020. Additionally, historical revisions released by the Bureau of Labor Statistics indicated that the number of job creations from April 2024 to March 2025 was overestimated by 911,000 positions. Powell emphasized that the risks weighing on the labor market appear to have increased, thereby justifying the change in monetary policy direction initiated in September.
A Clearly Established Path of Rate Declines
The Federal Reserve initiated its monetary easing cycle in September 2025 with an initial 25-basis-point reduction, bringing the federal funds rate to a range of 4.00% to 4.25%. This decision, in line with market expectations, marks the first decrease in borrowing costs since December. During this September meeting, Fed officials released new economic projections indicating an additional 50-basis-point reduction by the end of 2025, followed by a quarter-point cut in 2026.
About half of the officials anticipate two more rate cuts before the year's end, with meetings scheduled for late October and December. The FOMC minutes reveal that most officials found it appropriate to move the rate toward a more neutral level, as they considered that downside risks to employment had increased. This accommodative stance aims to prevent unnecessary strain on the economy and financial system, as the current job creation rate, estimated at 75,000 per month since January, falls below the equilibrium rate needed to stabilize unemployment. Investors welcomed these signals, interpreting Powell's remarks as confirmation of a further cut at the upcoming meeting on October 28 and 29. Bond markets reacted with a slight decline in Treasury yields, while the dollar weakened against major currencies.
Complex challenges amid persistent inflation and incomplete data
The Fed is navigating a particularly complex environment where inflation remains above the 2% target, reaching 2.9% according to the central bank's preferred PCE index. Powell clarified that this high inflation is largely due to tariffs imposed by the US administration, rather than widespread inflationary pressures in the economy.
However, a majority of FOMC officials continue to emphasize that the risks to the inflation outlook remain tilted to the upside, creating a tension with the need to support employment. The federal government's budget stalemate adds an additional layer of uncertainty, depriving the Fed of essential official data to assess the economic situation.
According to Jerome Powell, the institution nevertheless has sufficient information from public and private sources to guide its decisions until the October meeting, but he warned that challenges could arise if the shutdown persists. The Fed chair also addressed the issue of quantitative tightening, indicating that the end of this balance sheet reduction process, currently at $6.6 trillion, could be approaching in the coming months. Some indicators indeed suggest a gradual tightening of liquidity conditions in the money markets. Powell defended the Fed's flexibility in using its balance sheet, while acknowledging in retrospect that the institution might have needed to stop its asset purchases earlier during the pandemic.
This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
