NextFin news, On October 14, 2025, in Philadelphia, Federal Reserve Chair Jerome Powell addressed the National Association of Business Economics, emphasizing a marked slowdown in US job creation as a mounting risk to the economy. Powell noted that while the unemployment rate remained low through August, payroll gains had sharply decelerated, partly due to declining labor force growth influenced by lower immigration and reduced labor force participation. This slowdown, he explained, has shifted the Fed’s risk assessment, increasing downside risks to employment.
Powell’s remarks came shortly after the Federal Open Market Committee (FOMC) in September implemented the first interest rate cut of the year, reducing the key federal funds rate by 25 basis points. The Fed’s projections at that meeting anticipated two more rate cuts in 2025 and an additional cut in 2026. Powell reiterated that these cuts aim to support the labor market and broader economic growth, especially as official economic data releases have been disrupted by the ongoing US federal government shutdown.
He also defended the Fed’s prior quantitative easing measures during the COVID-19 pandemic, which involved purchasing long-term Treasury bonds and mortgage-backed securities to stabilize markets and keep long-term interest rates low. Despite criticism from Treasury Secretary Scott Bessent and some political figures, Powell maintained that these actions prevented market breakdowns that could have severely disrupted borrowing costs.
Powell highlighted that inflation, measured by the Fed’s preferred gauge, remains elevated at 2.9%, slightly above the 2% target, but broader inflationary pressures appear contained. The Fed’s dual mandate to foster maximum employment and price stability presents a complex policy challenge, especially as the labor market shows signs of softening while inflation remains above target.
Market expectations, reflected in CME Group futures data, indicate a greater than 95% probability of at least a 50 basis point cumulative rate cut by the end of 2025. Powell also hinted at a potential pause in the Fed’s balance sheet runoff, which has been reducing the central bank’s holdings of Treasury and mortgage-backed securities since the pandemic, signaling a possible shift toward more accommodative monetary policy.
The hiring slowdown is attributed to multiple structural and cyclical factors. Reduced immigration, a key driver of labor force growth in recent decades, has slowed due to tighter immigration policies and geopolitical factors. Additionally, labor force participation rates have declined, influenced by demographic shifts such as aging populations and changing workforce preferences post-pandemic. These trends have contributed to a less dynamic labor market, constraining payroll growth despite low unemployment.
This labor market softening has significant implications for the Fed’s policy trajectory. The central bank must carefully calibrate rate cuts to stimulate employment without reigniting inflationary pressures. The Fed’s cautious approach reflects the delicate balance between supporting economic growth and maintaining price stability, especially in a context of persistent inflation above target and geopolitical uncertainties.
Looking ahead, the Fed’s anticipated rate cuts could lower borrowing costs for consumers and businesses, potentially boosting sectors sensitive to interest rates such as housing, automotive, and capital investment. However, the effectiveness of these cuts depends on broader economic conditions, including fiscal policy, global trade dynamics, and consumer confidence.
Moreover, Powell’s indication of a possible halt to balance sheet runoff suggests the Fed may maintain a larger asset base longer than initially planned, providing additional liquidity support to financial markets. This could help stabilize longer-term interest rates and support credit availability, further aiding economic recovery.
In summary, Powell’s comments underscore a shift in the Federal Reserve’s stance toward a more accommodative monetary policy in response to emerging labor market risks. The hiring slowdown signals that the Fed prioritizes employment support, even as it remains vigilant on inflation. This nuanced approach reflects the complex interplay of economic forces shaping US monetary policy in late 2025 and beyond.
According to The Korea Times and Channel News Asia, these developments highlight the Fed’s adaptive strategy amid evolving economic challenges, with rate cuts expected to continue as a key tool to sustain growth and employment.
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