Federal Reserve Chairman Jerome Powell confirms that new interest rate cuts are on the way, due to the slowdown in the labor market, which is currently of more concern than inflation. A very important statement one week before the next monetary policy meeting on 28-29 October, at the end of which another interest rate cut of 25 basis points should be announced.
Powell: Job creation slows
Data available before the shutdown shows that growth in economic activity may follow a slightly more stable trajectory than expected,” Federal Reserve Chair Jerome Powell said in a speech to the National Association for Business Economics (NABE), adding that job growth has instead slowed sharply, “probably” due to “lower immigration and lower labor force participation.”
“In this less dynamic and somewhat weaker labor market, the downside risks to employment appear to have increased.” Although official employment data for September is delayed due to the shutdown, “available data suggests that both layoffs and hiring remain low and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulties continue to follow a downward trajectory.”
he underlined.
Expectations about monetary policy are changing
The growing downside risks to employment have changed the Fed’s risk assessment. As a result – Powell explained – “we thought it appropriate to take a further step towards a more neutral policy position at our September meeting”. Meeting in which the US central bank cut rates by 25 basis points.
“There is no risk-free path for economic policy as we face the challenge of balancing our employment and inflation goals. This challenge was evident in the scattering of Committee participants’ projections at the September meeting.”
“We will define policies based on the evolution of the economic outlook and the balance of risks, rather than following a pre-established path,” reiterated the Fed President, confirming the full anchoring of monetary policy on the evolution of the data.
What to expect at upcoming meetings
At the next meeting of the FOMC (the Fed’s monetary policy committee) at the end of October, it is reasonable to expect another rate cut in the order of 25 basis points, as happened in September. This is also confirmed by the performance of Fedwatch futures listed on the CME which summarize the market’s expectations regarding the performance of the Fed Funds. A rate cut of 25 basis points to 3.75-4% is universally expected (95.7% probability) for the month of October, just as another intervention of the same size is almost certain (94.6% probability) for the following meeting in December.
