Federal Reserve chair Jerome Powell flagged a sharp slowdown in the United States hiring as a growing risk to the economy, signaling that the central bank is likely to cut its key interest rate twice more this year.
“Rising downside risks to employment have shifted our assessment of the balance of risks,” Powell said Tuesday in prepared remarks to the National Association for Business Economics in Philadelphia.
He emphasized that while inflation remains elevated, the Fed’s focus has turned to protecting the labor market from further deterioration.
Powell’s comments come as official economic data remain limited due to the ongoing federal government shutdown, complicating the Fed’s decision-making.
“The outlook for employment and inflation does not appear to have changed much since our September meeting,” Powell said, referencing the Fed’s first rate cut of the year.
At that meeting, policymakers projected two additional cuts in 2025 and one more in 2026—a path that would lower borrowing costs for mortgages.
While the unemployment rate has held near historic lows, payroll gains have slowed sharply. “In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” Powell said.
He noted that both layoffs and hiring remain low, but perceptions of job availability among households and hiring difficulty among firms are trending downward.
Fed officials have relied on alternative data and a network of business contacts to fill gaps left by delayed government reports.
ADP revealed that the private sector shed 32,000 jobs in September, while Challenger, Gray & Christmas reported 54,064 job cuts for the month. Hiring plans, meanwhile, have collapsed to the lowest level since 2009.
Other central bank leaders echoed Powell’s concerns. John Williams, president of the New York Fed, said last week he saw “more downside risks to the labor market and employment” than to inflation, supporting a cautious approach to further rate cuts.
However, some policymakers remain wary of persistent inflation, especially as tariffs continue to push up prices for consumer goods.
The National Association for Business Economics (NABE) panel of 40 professional forecasters marked up their estimates for US gross domestic product (GDP), now expecting inflation-adjusted GDP to rise 1.8% in 2025, up from 1.3% in June.
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