Powell outlines Fed labor market view after third consecutive rate cut

Chairman of the Federal Reserve Jerome Powell Explain how the central bank views the labor market after it cut interest rates last week for the third time in a row, with a new jobs report released on Tuesday.

Powell spoke at a press conference afterward Federal Reserve Policymakers voted to cut the federal funds rate by 25 basis points to a range of 3.5% to 3.75%, amid signs of a weak labor market and emerging risks to half of the Fed’s dual mandate focused on promoting maximum employment.

Powell noted that the latest jobs report from the Bureau of Labor Statistics (BLS) released for September showed that the unemployment rate “continued to rise, to 4.4%, and that job gains slowed significantly earlier in the year.”

“Much of the slowdown likely reflects a decline in labor force growth due to lower immigration and labor force participation, although labor demand has clearly declined as well,” Powell said. “In a less dynamic and somewhat softer labor market, downside risks to employment appear to have risen in recent months.”

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The Fed’s latest decision was accompanied by a summary Economic forecastsknown as a “dot chart”, which shows the unemployment rate rising to 4.5% at the end of 2025 before falling from there to 4.4% next year.

Powell said the Fed does not expect a sharp downturn in the economy Labor market The current interest rate policy is close to neutral, which should support the labor market to prevent further deterioration.

“The idea is that, with another 75 basis points cut now, and with policy in a wide range of reasonable, neutral estimates, this will be a place where the labor market will stabilize or rise by just 1 or 20 percent. But we won’t see any kind of sharper contraction, which we haven’t seen any evidence of at all.”

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Powell noted that payroll growth has slowed to an average of about 40,000 per month since April and that policymakers see an overstatement of about 60,000 in the monthly jobs numbers — meaning monthly jobs numbers will average -20,000 over that period.

“I don’t think that’s particularly controversial,” Powell added. “It’s very difficult to estimate job growth in real time. They don’t count everyone. They did a survey and there was something of a systematic overshoot. We expect that, and they correct it twice a year. So the last time they corrected it, we thought the correction was going to be eight or nine hundred thousand…and that’s exactly what happened. We think that has continued.”

Two policymakers objected to the Federal Reserve’s decision to cut interest rates in favor of leaving interest rates unchanged amid uncertainty about the economy, including inflation expectations.

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Chicago Fed President Austan Goolsbee said that without signs of a deteriorating labor market, further interest rate cuts do not appear wise as inflation rises. (Brendan MacDiarmid/Reuters)

Chicago Federal Reserve Bank President Austin Goolsbee He said in a statement that he “feels the wisest course is to wait for more information.”

“If the labor market were deteriorating rapidly, it would be different,” Goolsby said. “But most of the data we have shows stable economic growth with the labor market slowing only moderately and with measures similar to those taken in previous expansions.” “An environment that can be described as ‘low employment/low employment’ is more consistent with companies dealing with continued uncertainty than it is with a traditional business cycle slowdown.”

Kansas City Fed President Jeffrey Schmid also dissented in favor of keeping interest rates steady, writing that “inflation remains very high, the economy is showing continued momentum, and the labor market — though cool — remains broadly balanced.”

The BLS is scheduled to release its November jobs report on Tuesday, which economists at LSEG expect to show 40,000 jobs added for the month.

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The BLS said it will not release its October jobs report, as its data collection activities have been negatively impacted by government shutdownIt was not practical to collect that data retrospectively once the lockdown ended in mid-November. Some available October data will be included in the November report.