US jobs concern: Jerome Powell sees rising employment risks; Federal Reserve may cut rates twice more this year

Federal Reserve Chair Jerome Powell warned on Tuesday that the sharp slowdown in US hiring poses increasing risks to the economy, suggesting the central bank may reduce its key interest rate two more times before the year ends.In written remarks ahead of a meeting of the National Association of Business Economics in Philadelphia, Powell noted that despite the federal government shutdown cutting off official economic data, “the outlook for employment and inflation does not appear to have changed much since our September meeting,” when the Fed reduced its key rate for the first time this year, AP reported.At that September meeting, Fed officials forecast two additional rate cuts in 2025 and one in 2026. Lower rates could ease borrowing costs for mortgages, car loans, and business loans.Powell reiterated that the Fed is slightly more concerned about the job market than its other mandate of keeping prices stable. While tariffs have lifted the Fed’s preferred measure of inflation to 2.9%, he said, there are no “broader inflationary pressures” that would keep prices elevated.“Rising downside risks to employment have shifted our assessment of the balance of risks,” Powell said.The Fed chair also indicated that the central bank may soon stop shrinking its roughly $6.6 trillion balance sheet. The Fed has been allowing about $40 billion of Treasuries and mortgage-backed securities to mature each month without replacing them, a policy that could influence longer-term Treasury yields.Powell spent much of his speech defending the Fed’s earlier purchases of longer-term Treasuries and mortgage-backed securities during 2020 and 2021, measures intended to lower longer-term rates and support the economy during the pandemic.Those purchases have been criticised by Treasury Secretary Scott Bessent and some potential Trump administration nominees to replace Powell next May. Critics argue the bond purchases exacerbated inequality by boosting the stock market without materially benefiting the economy and that the Fed continued purchases too long even as inflation surged in late 2021.“With the clarity of hindsight, we could have—and perhaps should have—stopped asset purchases sooner,” Powell said. “Our real-time decisions were intended to serve as insurance against downside risk.”He added that the purchases were also aimed at preventing a breakdown in the Treasury securities market, which could have sent interest rates significantly higher.