Topline
Federal Reserve Chair Jerome Powell on Tuesday said a weakening labor market in the U.S. has outweighed concerns about growing inflation, prompting the central bank to lower interest rates last week for the first time in months amid pressure from President Donald Trump.
Powell, during an address Tuesday in Providence, Rhode Island, said “near-term risks” to inflation are “tilted to the upside,” while employment risks are increasing and have shifted the Federal Reserve’s approach to monetary policy, despite presenting a “challenging situation.”
The Fed’s policymaking panel voted 11-1 last week to lower interest rates, which were held between 4.25% and 4.5% since December, by a quarter-point to a new range between 4% and 4.25%.
The U.S. labor market is experiencing a “marked slowdown” in supply and demand, Powell said, though he noted “uncertainty around the path of inflation remains high.”
Powell also noted he believed the latest interest rate easement leaves the U.S. “well-positioned” to respond to economic developments.
Fed Governor Michelle Bowman said earlier Tuesday she was “concerned” the labor market could enter a “precarious phase,” suggesting a “shock could tip it into a sudden and significant deterioration.”
Bowman said she believed recent cuts to interest rates are the “first step” to return to neutral levels, though Powell did not signal whether the central bank would favor additional cuts at its upcoming meeting in October.
Powell’s comments precede personal consumption expenditures (PCE) price index data, the Fed’s preferred inflation measurement, from the Bureau of Economic Analysis on Friday. Wall Street anticipates annual inflation to hit 3% in August, a 0.1% uptick from July, while headline PCE inflation is expected to jump to 2.8% from 2.6%, according to FactSet.
Investors are trading at 91.9% odds the Fed’s policymaking board will lower rates by at least a quarter-point to between 3.75% and 4% on Oct. 29, according to CME’s FedWatch. Fed Governor Stephen Miran, Trump’s latest appointee to the central bank and the lone vote against the Fed’s decision for a quarter-point cut last week, has argued in favor of a half-point reduction to rates. Miran, in comments to the Economic Club of New York on Monday, suggested interest rates could be cut by nearly 2%.
Powell and the Federal Open Market Committee have faced criticism from Trump during his second presidency, as Trump has claimed the central bank should cut rates “BIGGER THAN [they] HAD IN MIND.” The Fed has planned for up to two 25-basis-point reductions to interest rates by the end of the year, lowering the range down to between 3.75% and 4%, while adhering to a dual mandate of full employment and stabilized inflation of around 2%. Unemployment rose more than expected to 4.3% in August, with far fewer jobs added than expected, while the Bureau of Labor Statistics noted the labor market added nearly 1 million fewer jobs in the 12 months ending in March. Trump ousted the agency’s chief earlier this year over claims of data manipulation ahead of the 2024 presidential election, and Commerce Secretary Howard Lutnick has said that under new leadership, the agency’s data will “get better.”