Powell says the labor market continues to decline despite lagging jobs data

Chairman of the Federal Reserve Jerome Powell He said on Tuesday that the economy was still seeing a downturn in the labor market despite the government shutdown, which delayed the release of official jobs and inflation data.

Powell spoke at the National Association of Business Economists (NABE) after receiving the Adam Smith Award for his work applying economic principles to policy. The Fed chairman said that while the September jobs report and inflation data are out, available data suggests that the sluggish labor market and inflationary pressures caused by tariffs remain.

“while Unemployment rate “Remaining low through August, payroll gains slowed sharply, partly due to lower labor force growth due to lower immigration and labor force participation. In a less dynamic and somewhat softer labor market, downside risks to employment appear to have risen,” Powell said.

“While official September employment data is delayed, available evidence suggests that layoffs and hiring remain low, and that households’ perceptions of job availability and businesses’ perceptions of hiring difficulty continue their downward trajectories,” he said.

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The Chairman said that one of the challenges in tracking the labor market is that “both supply and demand are in the market laboratory “It came down very sharply and very quickly.”

He noted that it was “remarkable” that the unemployment rate had barely moved, although he noted that it had risen slightly, suggesting that demand was falling faster than supply.

Powell went on to discuss inflation, which has remained above the central bank’s 2% target and has trended higher in recent months due to… Impact of tariffs.

“Available data and surveys continue to show that increases in commodity prices primarily reflect tariffs and not broader inflationary pressures,” Powell said in his remarks. “Consistent with these influences, near-term inflation expectations have generally increased this year, while most measures of longer-term expectations remain in line with our 2% target.”

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The Fed chairman noted that inflation “seems to be continuing to increase, quite gradually, but it is increasing — it is still on the way up, so there is a risk that this will lead to more persistence.”

Powell reiterated his previous comments that there is no risk-free path forward for the Fed and the economy in light of data indicating risks. High inflation Employment declines, which would put the Fed’s dual mandate of price stability and maximum employment into tension.

He pointed out that “these two cases, with respect to our two target variables, require different monetary policy responses.”

Typically, as inflation rises, the Fed will look to raise interest rates to bring inflation down to 2%, where it is currently close to 3%. In contrast, a weak labor market would prompt the Federal Reserve to consider lowering interest rates to support economic activity.

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the Federal Reserve He cut interest rates for the first time this year in September even though inflation was trending away from target, and Powell noted that that presented the risk that the Fed would have to go back to tackling inflation if the cuts continued in an attempt to boost the labor market.

“But it’s clear that if we move too quickly, we might leave the inflation job unfinished and have to come back later and finish it,” Powell explained. “And if we move too slowly, there could be unnecessary losses, painful losses in the labor market.”

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“We’re in a difficult position to balance those two things,” Powell said. “I think over the last few months we’ve been able to maintain a restrictive stance because the labor market remains very strong.”

He added: “I think the data we got immediately after the July meeting, which was revised up to May, showed that the labor market has actually declined significantly and puts us in a position where the two risks are closer to balance.”