Philadelphia — The US labour market remained mired in its low-hiring, low-firing doldrums through September, though the economy “may be on a somewhat firmer trajectory than expected”, Federal Reserve chair Jerome Powell said on Tuesday.
Powell said at the National Association for Business Economics conference in Philadelphia policymakers would take a “meeting-by-meeting” approach to interest rate cuts as they balance job market weakness with above-target inflation.
He also acknowledged the economic dilemma that has split US central bank officials almost evenly among those concerned most about still-high and potentially rising inflation, and those worried the labour market may be facing a rapid slide downward.
A newly added complication, Powell said, is that recent data on economic activity have been stronger than expected, but that had not yet translated into renewed hiring strength.
“You do have a bit of tension between labour market data — we see very low levels of job creation — and yet people are spending,” Powell said. “We are going to have to see how that plays out.”
For now, the analysis would be done in the absence of official data that has been largely suspended by the US government shutdown, he said.
Still, Powell said there was adequate insight for the Fed’s October 28-29 meeting, but “we’ll start to miss that data, particularly October data”, if the shutdown persists.
For the time being there is a broad enough array of public and private information to make a policy judgment, Powell said. The Trump administration recently told the labour statistics bureau it could publish its consumer price index report for September. It’s due to be published on October 24, days before the Fed’s next policy meeting.
“Based on the data that we do have it is fair to say the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago”, at which the Fed cut its benchmark interest rate by a quarter of a percentage point, Powell said.
“Data available before the shutdown, however, shows that growth in economic activity may be on a somewhat firmer trajectory than expected.”
Investors expect that the Fed will cut its policy rate by another quarter of a percentage point in two weeks.
Powell is “saying that the economy is on solid footing, but he’s also saying we have weakness ... He’s preparing the markets for a series of rate cuts, but not necessarily in a sequential order,” said Peter Cardillo, chief market economist with Spartan Capital Securities in New York. “He’ll cut by 25 basis points at the end of this month, then they’ll assess.”
‘No risk-free path’
Powell noted the “healthy debate” within the Fed, reflected in recent projections that showed about half of its policymakers expecting only one or no more rate cuts this year, and the rest projecting two or more.
It’s a sign of the trade-offs the Fed is facing between securing its 2% inflation target and protecting the job market.
“There is no risk-free path for policy as we navigate the tension between our employment and inflation goals,” Powell said.
Policy projections issued by Fed officials every three months “should be understood as representing a range of potential outcomes whose probabilities evolve as new information informs our meeting-by-meeting approach to policymaking”, he added.
Even with the September jobs report delayed, Powell, who devoted most of his formal remarks on Tuesday to a discussion of Fed balance-sheet policy, said he drew from a variety of public and private data sources for insight on the job market.
“While official employment data for September is delayed, available evidence suggests that layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue their downward trajectories,” Powell said.
The elevated inflation was partly due to rising goods prices that “primarily reflect tariffs rather than broader inflationary pressures”.
Reuters
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