Market Update: Fed’s Powell says economy may be on firmer footing, but job market weak – Full Analysis

Powell, in remarks to a National Association for Business Economics conference in Philadelphia, acknowledged the economic dilemma that has split U.S. central bank officials almost evenly among those concerned most about still-high and potentially rising inflation, and those worried the labor market may be facing a fast slide downward.

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A newly added complication, Powell said, is that recent data on economic activity have been stronger than expected, but that hasn’t yet translated into renewed hiring strength.

“You do have a bit of tension between labor market data – we see very low levels of job creation – and yet people are spending,” Powell said. “We are going to have to see how that plays out.”

The analysis, for now, will be done in the absence of official data largely suspended by the U.S. government shutdown. Powell said he felt there was adequate insight for the Fed’s coming October 28-29 meeting, but that “we’ll start to miss that data, particularly October data,” if the shutdown persists.

But for the time being, Powell said, there is a broad-enough array of public and private information to make a policy judgment, with the Bureau of Labor Statistics recently told by the Trump administration that it could release its Consumer Price Index report for September. It is now due to be published on October 24, ahead of the Fed’s next policy meeting.

His remarks did not change the near unanimous consensus among investors that the Fed would cut its policy rate by another quarter of a percentage point in two weeks.

Powell is “saying that the economy is on solid footing, but he’s also saying we have weakness … He’s preparing the markets for a series of rate cuts, but not necessarily in a sequential order,” said Peter Cardillo, chief market economist with Spartan Capital Securities in New York. “He’ll cut by 25 basis points at the end of this month, then they’ll assess.”

‘NO RISK-FREE’ POLICY PATH

Powell noted the “healthy debate” within the Fed, reflected in recent projections that showed about half of its policymakers expecting only one or no more rate cuts this year, and the rest projecting two or more.

It’s a sign of the tradeoffs the Fed is facing between securing its 2% inflation target and protecting the job market.

“There is no risk-free path for policy as we navigate the tension between our employment and inflation goals,” Powell said, noting that the policy projections issued by Fed officials every three months “should be understood as representing a range of potential outcomes whose probabilities evolve as new information informs our meeting-by-meeting approach to policymaking.”

“While official employment data for September are delayed, 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,” Powell said.

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