By Nicole Goodkind

Federal Reserve Chair Jerome Powell sees continued downward pressure on the labor market, acknowledging one factor that has the majority of policymakers calling for more rate cuts.

"While the unemployment rate remained low through August, payroll gains have slowed sharply, likely in part due to a decline in labor force growth due to lower immigration and labor-force participation," Powell said Tuesday in prepared remarks before the National Association for Business Economics in Philadelphia. "In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen."

Tuesday's speech comes in the absence of fresh economic data, as the government shutdown, which began Oct. 1, has delayed the release of September jobs numbers. Still, Powell said the available data show that not much has changed since the last policy meeting four weeks ago.

"Available evidence suggests that both layoffs and hiring remain low, and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue their downward trajectories," he said.

Inflation, meanwhile, sits at 2.9% as of August, up from earlier this year. It has remained stubbornly above the central bank's 2% target for nearly five years. Still, Powell said he believes the recent rise in inflation is due to tariffs and not "broader inflationary pressures." Long-term expectations, he said, still remain in line with the Fed's target.

Powell's comments mark his first major public appearance since the Fed's policy meeting last month, which exposed deep divisions among Fed officials about the timing and magnitude of future interest-rate cuts.

The Fed lowered rates by a quarter of a percentage point at its September meeting, to a target range of 4.00% to 4.25%. The decision was nearly unanimous; only newly installed Fed Gov. Stephen Miran dissented in favor of a half-point cut. But Fed officials' economic projections told a different story: Policymakers were nearly split down the middle between those who see the need for additional cuts this year and those who think the current policy stance is sufficiently accommodative.

"There is no risk-free path for policy as we navigate the tension between our employment and inflation goals. This challenge was evident in the dispersion of Committee participants' projections at the September meeting," Powell said Tuesday.

The Fed's dual mandate stipulates that it must pursue full employment and price stability, a charge now challenged by competing concerns. But, Powell said, "rising downside risks to employment have shifted our assessment of the balance of risks." In other words, the Fed is pulling some of its focus away from inflation, which reached a 40-year high of 9.1% in June 2022, and shifting it to the labor market.

Powell spent much of his speech defending the Federal Reserve's $6.6 trillion balance sheet and ample reserves regime, the central bank's method for controlling short-term interest rates by keeping a large supply of money in the banking system. The Fed is able to directly set the target interest rate by adjusting the interest it pays banks on those reserves.

Some contenders for Fed chair, including former Fed governor Kevin Warsh, have been vocal about their plans to significantly reduce the balance sheet. Warsh has said he also plans to give Treasury Secretary Scott Bessent a large share of the responsibility for how and when balance sheet reductions happen. That would be a significant policy shift that could weaken the Fed's longstanding independence from the federal government and White House.

"The Treasury secretary would need to find the proposed change in Fed holdings acceptable, given that it is partially fiscal policy in disguise," Warsh told Barron's .

Tuesday's speech comes days before the Fed enters its premeeting blackout period at the end of this week. Investors currently see a 97% chance of another quarter-point rate cut at the Oct. 28-29 meeting, according to the CME FedWatch tool.

Write to Nicole Goodkind at nicole.goodkind@barrons.com.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 14, 2025 12:20 ET (16:20 GMT)

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