WASHINGTON (AP) — Sharp Recruitment slowdown Federal Reserve Chairman Jerome Powell said Tuesday that this poses increasing risks for the U.S. economy and suggests the Fed will likely cut its key interest rates two more times this year.
Chairman Powell, in a speech in Philadelphia, said: federal government shutdown Cutting official economic data, the Fed said “the outlook for employment and inflation appears unchanged since its September meeting.” lowered key rate First time this year.
Fed officials at the meeting expected the central bank to cut rates twice more this year and once in 2026. The Fed’s interest rate cuts could reduce borrowing costs for mortgages, auto loans and business loans. Mr. Powell spoke before a meeting of the National Association for Business Economics.
Powell reiterated a message he first issued after the September meeting, suggesting the Fed is slightly more concerned about the job market than Congress’s mandate to keep prices stable. He said that while the tariffs raised the Fed’s recommended inflation measure to 2.9%, there were no “broader inflationary pressures” other than the tariffs that would keep prices high.
“The heightened downside risks to employment have changed our assessment of the balance of risks,” he said.
Economists said Powell’s comments solidified expectations for further interest rate cuts at the next meeting on October 28-29.
“There was little doubt that the[Fed]was inclined to cut rates at its next meeting, and today’s comments strongly confirm that expectation,” Michael Feroli, JPMorgan Chase’s chief U.S. economist, said in a note to clients.
Powell also said the central bank may soon halt its balance sheet reduction by about $6.6 trillion. The Fed has previously allowed about $40 billion worth of U.S. Treasuries and mortgage-backed securities to mature each month without being replaced.
“We may get closer to that point in the next few months,” Powell said.
This transition could result in slightly lower borrowing costs in the long term. Economists at BMO Capital Markets estimate that U.S. Treasury yields fell slightly after Powell’s remarks.
Separately, Powell spent much of his speech defending the Fed’s practice of purchasing long-term Treasury bonds and mortgage-backed securities in 2020 and 2021, aimed at lowering long-term interest rates and supporting the economy during the pandemic.
But these purchases have come under heavy criticism from Treasury Secretary Scott Bessent and some Treasury secretaries. candidate The Trump administration has floated him as the successor to Chairman Powell when his term ends next May.
Bessent said amid widespread criticism: Published earlier this year Huge bond purchases during the pandemic have boosted stock markets and worsened inequality without providing any noticeable benefits to the economy, the researchers said.
Other critics have long argued that the Fed kept its purchases in place for too long, keeping interest rates low even as inflation began to spike in late 2021. The Fed suspended its purchases in early 2021 and subsequently sharply raised borrowing costs to combat inflation.
“In hindsight, we could and should have stopped the asset purchases sooner,” Powell said. “Our real-time decisions were intended to act as insurance against downside risk.”
But Powell said acting sooner would not have prevented the coronavirus-era inflation spike: “Stopping it sooner might have made some difference, but it wouldn’t be enough to fundamentally change the trajectory of the economy.”
Powell also said the purchases were aimed at averting a collapse in the U.S. Treasury market, which could cause interest rates to rise significantly.
The Fed chair also cited a bipartisan group of senators’ efforts to block the central bank from paying interest on banks’ cash reserves held at the Fed. A bill to block the Fed’s efforts failed in the Senate last week in a lopsided 83-14 vote.
Still, it attracted support from both parties, including Republican Sens. Rand Paul of Kentucky and Ted Cruz of Texas, and Democratic Sen. Elizabeth Warren of Massachusetts.
Powell said that without the ability to pay interest on reserves, the Fed would “lose control of interest rates” and be unable to carry out its mission. The Fed raises the short-term interest rates it manages when it wants to cool borrowing and spending and control inflation, and lowers rates when it wants to promote borrowing, growth, and employment.
