Fed Chair Powell says hiring slowdown poses economic risks, hinting at more interest rate cuts

Federal Reserve Chair Jerome Powell indicated that a significant slowdown in hiring poses increasing risks to the U.S. economy, reinforcing expectations for two additional interest rate cuts this year to bolster the job market. While tariffs have pushed inflation to 2.9%, Powell noted an absence of broader inflationary pressures and suggested the Fed may soon halt the reduction of its $6.6 trillion balance sheet. He also addressed past criticisms of pandemic-era asset purchases, acknowledging in hindsight they could have ended sooner but were crucial for market stability.

Analysis

Federal Reserve Chair Jerome Powell signaled a significant dovish shift, emphasizing that a sharp slowdown in hiring poses growing risks to the U.S. economy. This concern reinforces expectations for two additional interest rate cuts this year, specifically in October and December, and one more in 2026, aiming to reduce borrowing costs and stimulate economic activity.

Despite tariffs pushing the Fed's preferred inflation measure to 2.9%, Powell noted a lack of broader inflationary pressures, suggesting the central bank's focus has shifted towards employment stability. The Fed may also soon cease shrinking its $6.6 trillion balance sheet, a move that could weigh on longer-term Treasury interest rates.

Powell addressed past criticisms regarding pandemic-era asset purchases, acknowledging that "with the clarity of hindsight, we could have—and perhaps should have—stopped asset purchases sooner." However, he defended these actions as crucial "insurance against downside risk" and for preventing a breakdown in the Treasury market.

Key Decisions for Investors

• Monitor upcoming Fed meetings for confirmation of anticipated rate cuts, particularly the October 29th decision, as these will directly impact borrowing costs and market liquidity.
• Evaluate portfolio exposure to interest-rate sensitive sectors, as lower rates and a potential halt to quantitative tightening could support growth-oriented assets and corporate expansion.
• Consider the implications of a dovish Fed stance on the U.S. dollar and fixed-income yields, adjusting duration strategies accordingly while watching for any re-emergence of broader inflationary pressures.