Fed Chair Powell: Weak Job Growth May Warrant Rate Cuts/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ Federal Reserve Chair Jerome Powell said Tuesday that a sharp slowdown in U.S. hiring increases the need for interest rate cuts, likely signaling two more reductions in 2025. Despite elevated inflation due to tariffs, Powell stressed the Fed’s growing concern over weakening employment. He also defended past stimulus policies during the pandemic, acknowledging they may have lasted too long.
Fed Rate Cut Outlook Quick Looks
- Powell says hiring slowdown increases downside risks for economy
- Fed likely to cut interest rates twice more in 2025
- Fed may end balance sheet reductions soon
- Inflation still elevated at 2.9%, driven by tariffs
- No broader inflationary pressures beyond trade duties
- Lower rates would ease mortgages, car, and business loans
- Powell defends bond-buying policies from 2020–2021
- Critics, including Treasury Secretary, say asset purchases fueled inequality
- Powell concedes Fed may have ended bond buying too late
- Job market concerns now outweigh inflation risks for Fed
Deep Look: Powell Says Fed Likely to Cut Rates as Hiring Weakens
WASHINGTON, D.C. (AP) — Federal Reserve Chair Jerome Powell warned Tuesday that the U.S. job market is showing signs of significant weakening, increasing the likelihood that the central bank will lower interest rates twice more this year.
Speaking in prepared remarks to the National Association of Business Economics in Philadelphia, Powell acknowledged the continued lack of key federal economic data due to the government shutdown but emphasized that slowing employment growth poses a serious risk to the economy.
“Rising downside risks to employment have shifted our assessment of the balance of risks,” Powell said.
Fed’s Dual Mandate Shifts Toward Job Protection
The comments suggest a subtle but important shift in the Fed’s focus — from fighting inflation to supporting employment. Although Powell acknowledged that inflation remains elevated at 2.9%, largely due to ongoing tariffs, he dismissed the idea that broader, structural inflationary pressures are persisting.
“Outside of tariffs, there aren’t broader inflationary forces keeping prices high,” he said.
This aligns with the Fed’s September forecast, which anticipated three total rate cuts in 2025 — one of which has already occurred. The remaining two are now more likely, Powell’s comments suggest, as the central bank navigates between inflation control and job market health.
Balance Sheet Strategy Also Changing
Since 2022, the Fed has been allowing $40 billion in Treasury bonds and mortgage-backed securities to mature each month without replacing them — a strategy known as “quantitative tightening.” Ending this policy could lower long-term interest rates, offering further support to the slowing economy.
Defending the Pandemic-Era Bond Purchases
Much of Powell’s speech also served to defend the Fed’s controversial bond-buying programs in 2020 and 2021, designed to keep long-term rates low during the pandemic. The Fed purchased large quantities of Treasury and mortgage-backed securities, a move critics say overstimulated financial markets and contributed to later inflation.
Powell acknowledged that, with hindsight, the Fed may have been too slow to end those purchases.
“With the clarity of hindsight, we could have — and perhaps should have — stopped asset purchases sooner,” Powell said. “Our real-time decisions were intended to serve as insurance against downside risk.”
Criticism from Treasury and Trump Allies
Powell’s defense comes amid intensifying criticism from several corners — notably Treasury Secretary Scott Bessent and figures close to the Trump administration, who argue Powell’s policies widened inequality by boosting stock prices more than helping working Americans.
Bessent, in a detailed critique earlier this year, said the Fed’s bond-buying spree “worsened inequality” and failed to meaningfully boost the broader economy.
Some of Trump’s rumored picks to replace Powell when his term ends in May 2026 have echoed those concerns, blaming the Fed’s decisions for delaying inflation control and creating asset bubbles.
Next Moves: Inflation vs. Employment
Despite the backlash, Powell emphasized that the Fed’s dual mandate — balancing price stability and maximum employment — now requires it to give more weight to the fragile labor market.
Lower interest rates could help stimulate hiring by reducing borrowing costs for businesses, homeowners, and consumers alike. But any shift in monetary policy will require cautious calibration, particularly if inflation remains sticky.
With two more rate cuts now looking likely before year’s end, Powell’s message was clear: the Fed stands ready to act if hiring slows further — even if inflation has not yet returned to the 2% target.
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