Overview: Powell Ignores a Cooling Jobs Market as It Pushes for Policy Easing
Federal Reserve Chair Jerome Powell signalled a readiness to consider another quarter-point cut to U.S. borrowing costs as the labor market shows fresh signs of cooling. Speaking in Philadelphia, Powell warned that downside risks to employment have risen, a clear indication that policymakers view the current data as sufficient to justify further monetary accommodation even before the next official release from the Labor Department.
The remarks come amid a backdrop of mixed signals about the health of the U.S. jobs market. While the broad economy has displayed resilience in some sectors, private indicators suggest weaker hiring momentum. Powell noted that privately produced measures and internal Fed research point to a softer jobs picture, with both layoffs and hiring activity moving lower and households and firms reporting less optimism about job availability.
Labor Market Signals: What the Data Are Saying
New signs from the payroll processing firm ADP underscored the cooling trend, reporting a loss of 32,000 jobs in September. Although the ADP figures are not the official payrolls number, they contribute to the evolving narrative that the labor market may be cooling more quickly than anticipated.
Powell emphasized that the available evidence shows ongoing employment fragility alongside pockets of labor demand. He described declines in households’ perceptions of job openings and a shift in firms’ hiring expectations as consistent with a slower pace of hiring in the near term. These indicators, in his view, strengthen the case for the Fed’s contemplated policy steps in the coming weeks.
Policy Stance: A Dovish Tilt Growing More Definite
The Federal Reserve cut rates for the first time since December last month, moving the target range to 4-4.25%. Powell’s Philadelphia remarks suggest that a further rate cut—if data continue to align with a softer labor market and contained inflation—could be on the table for the October meeting, scheduled for October 28-29. Investors have priced in another quarter-point reduction, reflecting a consensus view that monetary policy could ease further if the economy weakens faster than anticipated.
Asked about inflation, Powell stressed that longer-term inflation expectations remain anchored near the Fed’s 2% goal. He noted that while tariff increases on imported goods may raise some prices in the near term, they have not, thus far, produced broader, persistent inflationary pressures. This observation supports a cautious approach to further easing without risking a renewed surge in inflation.
Balance Sheet and Quantitative Tightening
Beyond standard policy rate discussions, Powell addressed the Fed’s balance sheet and its future path. He suggested that the central bank could pause its quantitative tightening (QT) program in the coming months, depending on a broad set of indicators. QT has been reducing the assets accumulated under crisis-era QE, and the decision to halt or slow this process hinges on financial conditions, banking system dynamics, and the overall economy’s health.
Powell also acknowledged concerns about the size of the balance sheet, which has expanded substantially since the pandemic. He explained that higher non-reserve liabilities and the growth of the banking system necessitate a larger securities portfolio than pre-pandemic levels. The comments reflect an ongoing balancing act between providing liquidity and avoiding unnecessary inflationary or financial risks.
Outlook: Inflation, Growth, and the Path Forward
The Fed’s dual mandate—to achieve maximum employment and price stability at 2% inflation—continues to guide policy as the data evolve. Powell argued that the current inflation outlook remains consistent with the goal, despite tariff-driven price pressures. The central bank’s future policy moves will likely hinge on the trajectory of employment, wage growth, and consumer spending in the coming weeks.
While some economists worry that tariff policy could rekindle inflationary pressures, Powell’s remarks underscore a willingness to respond to evolving data. The October policy meeting looms, and markets will be watching for further signals on whether the Fed will indeed cut again and how it plans to manage the balance sheet during a period of uncertain inflation dynamics.
Bottom Line
Powell’s comments in Philadelphia mark a notable shift toward a more dovish stance amid a cooling jobs market. With the next policy meeting approaching, the Fed faces a delicate task: ease policy to support growth without reigniting inflation, while reassessing the size and pace of its balance-sheet normalization. The coming weeks will reveal whether the data align with a continued path of cautious easing or if softer signals give way to a more cautious stance.
