Powell signals potential for another rate cut as job market cools
The US labor market is showing renewed signs of strain, and Federal Reserve Chair Jerome Powell signaled that the central bank could be ready to support another quarter-point cut to borrowing costs later this month. Speaking in Philadelphia, Powell noted that “the downside risks to employment have risen,” offering what many analysts interpreted as the strongest hint yet that the Fed is comfortable moving again on rates as it weighs the latest data and its policy outlook.
Powell emphasized that even without fresh official Bureau of Labor Statistics figures—delayed by the federal government shutdown—privately produced indicators of the jobs market and internal Fed research provide enough evidence to suggest cooling conditions. He described the available evidence as showing that “both lay-offs and hiring remain low,” while households and firms are reporting increasingly cautious views on job availability and hiring difficulty. The assessment aligns with a broader easing path the Fed has sketched in recent weeks.
Official context matters: ADP data released around the same time showed a loss of 32,000 payrolls in September, reinforcing the impression that the labor market is softening. Taken with softer wage growth signals and cooler hiring activity, the data have reinforced expectations among traders that another rate cut could arrive at the Fed’s October meeting.
Powell’s remarks come as the Fed is already in a transition phase. The central bank cut its federal funds target range to 4.0-4.25% last month—the first reduction since December—as more evidence mounted that the labor market was weakening and inflation was gradually rolling toward the 2% goal. The October 28-29 gathering has drawn particular scrutiny, with investors pricing in a further 25 basis point cut in response to the evolving data landscape.
The Federal Reserve’s dual mandate—to achieve maximum employment and price stability at 2% inflation—continues to guide policymakers. Powell defended the view that longer-term inflation expectations remain broadly anchored around the 2% target, arguing that while tariffs can push some prices higher, there is little indication of broad, persistent inflationary pressures at the moment.
Beyond policy rate decisions, Powell touched on the Fed’s balance sheet and the potential for a shift in quantitative tightening. He indicated that the central bank could pause QT “in the coming months” as it monitors a wide array of indicators. This would mark another step in a nuanced unwinding of the extraordinary balance sheet built up during crisis-era interventions. He also acknowledged concerns from Treasury officials about the size of the balance sheet, noting that non-reserve liabilities remain substantially higher than pre-pandemic levels due to ongoing demand for reserves amid a larger banking system and economy.
Powell’s broader assessment suggested a cautious stance: while policymakers acknowledge the cooling labor market, they remain vigilant for any renewed inflationary pressures from policy-induced distortions or external shocks. Many economists, however, warn that the tariff environment could spark renewed inflation, complicating the Fed’s balancing act. The central bank’s narrative continues to hinge on incoming data—both official and private—as it weighs whether additional rate relief is warranted this month.
Looking ahead, the outlook remains data-dependent. If payroll reports and other indicators reinforce the message of a cooling labor market, a second rate cut in short order could be on the table. If, conversely, inflation or employment resilience surprises to the upside, the Fed may reassess the pace and timing of further easing. Powell’s Philadelphia remarks underscore a central bank poised to act with caution, ready to respond as the economy adjusts to evolving conditions.
What this means for borrowers and markets
For borrowers, another rate cut would likely lower borrowing costs and could support housing, business investment, and consumer spending in the near term. Investors will be watching for further guidance on the Fed’s balance sheet and QT plans, as changes here can influence liquidity and financial conditions. While the path remains uncertain, the trajectory appears to favor gradual easing if the labor market continues to cool and inflation expectations stay anchored.
