The US labour market is showing further signs of distress, Jerome Powell has warned, as the Federal Reserve chair signalled that he could be ready to support another interest rate cut later this month.
Mr Powell said in Philadelphia on Tuesday that “the downside risks to employment have risen” – the strongest hint yet that Fed officials think they have enough evidence to back another quarter-point cut to US borrowing costs.
The Fed chair added that even without new Bureau of Labor Statistics data – delayed because of the federal government shutdown – privately produced measures of the jobs market, as well as internal Fed research, provided enough grounds to show the jobs market was cooling.
The “available evidence” indicated “both lay-offs and hiring remain low”, the Fed chair said, while “households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue their downward trajectories”.
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Figures from payroll service provider ADP showed companies shed 32,000 jobs in September.
The comments suggest that Powell is becoming more dovish on monetary policy, even as many economists worry that the Trump administration’s tariff policy will spur another bout of inflation across the US economy.
The blue-chip S&P 500 recovered from a decline earlier in the session to trade 0.3 per cent higher by afternoon in New York. The tech-heavy Nasdaq Composite was flat.
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The central bank last month cut borrowing costs for the first time since December, reducing the federal funds target range to 4-4.25 per cent amid signs that the US labour market was weakening.
The October meeting takes place on October 28-29. Investors have bet heavily on another quarter-point cut.
The Fed’s dual mandate requires it to target full employment and 2 per cent inflation.
Mr Powell said on Tuesday that longer-term inflation expectations remained “aligned with our 2 per cent goal”.
Despite US President Donald Trump’s tariffs triggering some rises in the prices of imported goods, there were few signs of “broader inflationary pressures”.
Mr Powell also said the Fed could halt its quantitative tightening operations – under which it allows assets bought under its crisis-fighting quantitative easing operations to run off – “in the coming months”, saying it was “closely monitoring a wide range of indicators to inform this decision”.
The Fed chair addressed concerns voiced by Treasury secretary Scott Bessent about the bloated size of the Fed’s balance sheet, saying that it was unlikely to go back to the levels last seen before the coronavirus pandemic.
“Non-reserve liabilities currently stand about $1.1 trillion (€947 billion) higher than just prior to the pandemic, thus requiring that our securities holdings be equally higher,” the Fed chair said. “Demand for reserves has risen as well, in part reflecting the growth of the banking system and the overall economy.”
The central bank’s balance sheet has swelled by quantitative easing since the global financial crisis, when the Fed sought to stabilise markets by buying trillions of dollars of US Treasuries and government-backed mortgage securities.
Mr Bessent said in a recent article for trade publication The International Economy that the QE policies had created an operating model that was “effectively a gain-of-function monetary policy experiment”.
Powell acknowledged that with “the clarity of hindsight, we could have – and perhaps should have – stopped” QE undertaken during the pandemic sooner, though he added that doing so would not have been enough “to fundamentally alter the trajectory of the economy”. – Copyright The Financial Times Limited 2025
