Federal Reserve Chair Jerome Powell said more US economy rate cuts may come this year. He warned that a slowdown in hiring poses a growing risk to growth and jobs. Speaking in Philadelphia on Tuesday, Powell said the economy still needs policy support to stay stable.
He addressed the National Association of Business Economics. Powell noted that even without fresh government data due to the shutdown, trends show steady but fragile conditions. “The outlook for employment and inflation has not changed much since our September meeting,” he said. That meeting saw the Fed lower its key interest rate for the first time this year.
Powell Signals More Rate Cuts Ahead
At that meeting, Fed officials predicted two more US economy rate cuts in 2025 and one in 2026. Lower rates help reduce borrowing costs for mortgages, car loans, and business financing. Powell said the Fed now places more focus on jobs than inflation. “Rising downside risks to employment have shifted our assessment of the balance of risks,” he stated.
Tariffs pushed the Fed’s preferred inflation measure to 2.9%, but Powell said there are no broad price pressures beyond that. “Outside of tariffs, inflation remains well-contained,” he added.
Markets Expect Another Cut
Economists now expect the next rate cut at the Fed’s October 28–29 meeting. Michael Feroli, chief U.S. economist at JPMorgan Chase, said, “Powell’s remarks confirm that another cut is almost certain.”
Markets reacted quickly. Treasury yields dropped slightly after the speech, signaling investor confidence in further easing. Analysts believe that additional US economy rate cuts could strengthen consumer and business confidence as hiring slows.
Private-sector data already shows fewer job openings and weaker wage growth. Many businesses have reduced hiring to protect profits as demand cools.
Balance Sheet Changes Coming
Powell also hinted that the Fed may soon end the reduction of its $6.6 trillion balance sheet. The central bank currently allows $40 billion in Treasuries and mortgage-backed securities to mature each month without replacement.
“We may approach that point in coming months,” Powell said. Analysts see that as another sign of a softer monetary stance. A slower runoff could put gentle downward pressure on long-term interest rates.
Powell Defends Pandemic Bond Purchases
Powell defended the Fed’s large bond purchases during 2020 and 2021. Those actions aimed to stabilize markets and support growth during the pandemic.
Critics, including Treasury Secretary Scott Bessent, argue that these purchases inflated asset prices and widened inequality. Some Trump administration advisers share that view.
Powell admitted the Fed could have stopped those purchases earlier. “With hindsight, we could have — and perhaps should have — ended asset buying sooner,” he said. Still, he stressed that the goal was to insure against deeper economic risks.
He also said that ending the program earlier would not have changed inflation’s course much. “Stopping sooner might have made a small difference, but not enough to alter the economy’s direction,” he noted.
Powell said the bond program also prevented a possible breakdown in the Treasury market. Without intervention, borrowing costs could have soared.
Senators Challenge Fed’s Powers
A bipartisan group of senators recently tried to limit the Fed’s ability to pay interest on bank reserves. The measure failed by a wide 83–14 Senate vote but gained support from both parties. Republican senators Rand Paul and Ted Cruz joined Democratic Senator Elizabeth Warren in backing it.
Powell warned that removing this tool would harm the Fed’s control over short-term rates. “Without this authority, we would lose control of interest rates,” he said. “That would weaken our ability to meet our mandate of stable prices and full employment.”
The Fed uses this mechanism to manage borrowing costs. It raises rates to cool spending and cuts them to encourage growth and hiring.
Economic Outlook: Balancing Jobs and Inflation
Economists believe Powell’s remarks show a clear policy shift. After two years focused on fighting inflation, the Fed now prioritizes protecting jobs and preventing a recession.
Sarah House, an economist at Wells Fargo, said, “Powell is signaling a soft landing. He wants to support hiring without reigniting inflation.”
Analysts expect the next few months to confirm this approach. If job growth continues to slow and inflation stays near target, two more US economy rate cuts appear almost certain.
Powell and his team hope to engineer a balanced recovery — one that supports employment and maintains price stability. “We will act as needed to sustain the expansion,” Powell said in closing.
The Fed’s challenge is to avoid doing too little or too much. Too few cuts could stall the recovery, while aggressive easing might trigger new inflation. For now, the chair’s message is clear: the job market, not inflation, is the greater risk.
With further US economy rate cuts expected, attention will remain on whether the Fed can guide the economy toward steady growth without reigniting the inflation it worked so hard to tame.
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