Fed Chair Powell Keeps Door Open For Interest Rate Cuts

Key Takeaways

• Federal Reserve Chair Jerome Powell said data show the job market deteriorating, suggesting he and other Fed officials will be willing to cut the central bank's key interest rate in the coming months to boost the job market.
• The Fed is tasked with maintaining price stability and preventing a surge in unemployment.
• Federal officials are attempting to strike a balance between the need to stimulate the job market by lowering rates and the risk that tariffs could spark inflation, all while lacking data that helps their decision-making.

Financial markets widely expect the Federal Reserve to cut borrowing costs again later this month, and the central bank's chair kept those expectations alive in remarks on Tuesday.

Despite the government shutdown depriving the central bank of its most crucial economic data, Fed Chair Jerome Powell said the inflation and unemployment situation seemed similar to that in September, when the Fed cut its benchmark interest rate and appeared to be on track to cut it several more times this year. Powell spoke at the National Association for Business Economics conference in Philadelphia.

"Based on the data that we do have, it is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago," Powell said.

Powell's remarks shed some light on how Fed officials are dealing with the data "blackout" caused by the government shutdown that began Oct. 1.

The shutdown has closed the government's statistical agencies that produce the data the Fed relies on to make decisions when setting the federal funds rate, which influences borrowing costs on all kinds of loans. For example, the Fed may not see the Bureau of Labor Statistics' job creation report for September, which was due Oct. 3.

A notable exception to the data blackout is the September Consumer Price Index report, which is set to be published Oct. 24.

What This Means For Your Finances

The Federal Reserve seems likely to continue cutting interest rates in the coming months, which could lower borrowing costs on things like credit cards and car loans, but also push down returns on CDs and high-yield savings accounts.

In the meantime, Powell and other officials are relying on data from private companies, surveys from the Fed itself, and other information in the absence of the "gold standard" reports on the economy from the BLS, which are based on massive and comprehensive surveys of households and businesses.

Currently, Fed officials are grappling with whether to cut interest rates to boost the economy and support the deteriorating job market, or keep them higher for longer to push inflation down to the Fed's goal of a 2% annual rate. President Donald Trump's tariff strategy has pushed up inflation while slowing the job market, creating a dilemma for Fed officials. The Fed's dual mandate from Congress calls for it to keep inflation low and employment high.

Some analysts interpreted Powell's comments as "dovish" or leaning towards more rate cuts in the future.

"Powell isn’t waiting to get in the holiday spirits. Christmas might come early from the Fed," David Russell, global head of market strategy at TradeStation, wrote in a commentary.

Related Education

Federal Funds Rate: What It Is, How It's Determined, and Why It's Important

Government Shutdown: Definition, Example, Impact on Economy

Powell Sees No Easy Answers

Powell highlighted the worsening job market while downplaying the possibility of high inflation, although he did not dismiss the risk entirely.

"There really isn't a risk-free path," Powell said in a Q&A after his speech. "Those two states of affairs for our two goal variables call for different monetary policy responses. As they come more into balance, I think the idea has been that policy should move from being tight to some degree, to being more neutral as those two things balance out. But it is clear, though, that if we move too quickly, we may leave the inflation job unfinished and have to come back later and finish it. If we move too slowly, there may be unnecessary losses, painful losses, in the employment market. So we're in the difficult situation of balancing those two things. "

Financial markets on Tuesday were pricing in about a 97% chance the Fed would cut interest rates at the next meeting of its policy committee Oct. 29 and 30, according to the CME Group's FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

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