Federal Reserve Chair Jerome Powell recently addressed the challenges facing the U.S. economy, noting signs of a weakening labor market. He spoke at a gathering of economists after receiving an award for his application of economic principles in policymaking. Powell pointed out that while the unemployment rate remained low as of August, job growth has significantly slowed. This decline is partly due to lower immigration and a decrease in labor force participation.
Despite the federal government’s delay in releasing September’s official employment and inflation data, Powell highlighted that available evidence suggests both layoffs and hiring remain surprisingly low. He remarked that perceptions of job availability among households and hiring difficulties for companies have both declined.
Powell further explained that tracking the labor market’s supply and demand has become more complex, as both have decreased sharply. He found it noteworthy that while the unemployment rate has barely changed, a slight uptick indicates that job demand is falling faster than the available workforce.
Regarding inflation, Powell stressed that it continues to exceed the Federal Reserve’s target of 2%. He attributed recent inflationary pressures mainly to tariffs rather than broader economic factors. While short-term inflation expectations have risen this year, longer-term measures remain close to the Fed’s goal.
The Fed typically would raise interest rates to combat rising inflation, but a weakening labor market presents a dilemma. Lowering rates might encourage economic growth, but it could also risk worsening inflation if not managed carefully. Powell warned that acting too swiftly to cut rates could leave the Fed with an unfinished task concerning inflation.
In summary, Powell’s statements reflect a balancing act for the Fed as it navigates competing economic forces of inflation and employment. With both risks now closely aligned, the Federal Reserve faces a challenging road ahead.
