Jerome Powell Warns of Rising Employment Risks Amid Slow Job Growth

US Federal Reserve Chair Jerome Powell expressed concerns on September 26, 2023, regarding a significant slowdown in job creation in the United States. Speaking at a conference in Philadelphia, Powell highlighted that while the unemployment rate remained low through August, recent data indicated a sharp decline in payroll gains. He attributed this trend partially to reduced labor force growth stemming from lower immigration and declining labor force participation.

The upcoming jobs data for September has not been released due to the ongoing US government shutdown. However, private sector reports suggest a marked slowdown in hiring during the month. In response to these developments, the Federal Reserve voted in mid-September to cut interest rates for the first time this year, opting for a quarter-point reduction to support the faltering labor market.

Powell noted that during the September meeting, Fed policymakers projected an additional 50 basis points of cuts in interest rates this year. This indicates a likelihood of further rate adjustments at the Fed’s remaining meetings in October and December. He remarked, “In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen,” while also confirming that longer-term inflation expectations remain aligned with the Fed’s target of 2%.

The Federal Reserve operates under a dual mandate from Congress to manage both inflation and employment independently. Current market data from the CME Group shows that futures traders consider a greater than 95-percent likelihood of an additional half percentage point rate cut by the end of the year.

Powell also suggested that the Fed may soon halt the reduction of its balance sheet, which expanded significantly during the initial phase of the COVID-19 pandemic. The Fed had invested heavily in Treasuries and mortgage-backed securities to bolster the economy. “Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell explained, indicating that this point may be approached in the coming months.

As concerns about job creation continue to rise, Powell’s remarks underscore the balancing act the Federal Reserve must perform in navigating the complexities of both employment and inflation goals. The current economic climate presents significant challenges, and policymakers are tasked with finding solutions that will stabilize the labor market while maintaining price stability.