Powell: "U.S. labor market clearly slowing... downside risk to employment has increased" [Fed Watch]

Powell, press conference immediately after the FOMC on the 30th

"The labor market is clearly cooling"

"Both labor supply and demand are slowing"

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), said on the 29th (local time) in opening remarks at the press conference following the October Federal Open Market Committee (FOMC) meeting that "the labor market is clearly cooling, and downside risks to employment have increased in recent months," directly explaining the background to this decision to lower rates by 0.25% percentage point. That day, the FOMC adjusted the target range for the federal funds rate to an annual 3.75~4.00%.

Powell said, "We must balance the tension between the two goals of employment and inflation, and because downside risks to employment have recently increased, the balance of risks has shifted accordingly. We judged it appropriate at this meeting to take a further step toward a more neutral policy stance."

"Labor demand clearly weakened"

In his opening remarks, Powell noted, "Through August the unemployment rate remained relatively low in the labor market, but employment growth has noticeably slowed since earlier this year."

He said, "Much of this slowdown appears to reflect a slowdown in labor supply due to lower immigration and reduced labor force participation, but labor demand has also clearly weakened."

He added, "Even though the official September employment report has been delayed due to a shutdown, available data show both layoffs and hiring remaining at low levels," and "households feel that job opportunities are declining, and firms report that difficulties in finding workers have eased."

He diagnosed that "with labor market dynamism declining and somewhat weakening, downside risks to employment have increased in recent months," stressing that "this change has prompted a shift in the balance of risks."

"Inflation remains above the Fed's long-run 2% goal"

Powell said, "Inflation has slowed significantly from its mid-2022 peak but still exceeds the Fed's long-run goal of 2%."

He said, "Measured by the consumer price index, the total personal consumption expenditures (PCE) price index rose 2.8% over the 12 months through September, and core PCE also rose 2.8%," explaining, "this is higher than earlier this year because inflation in the goods sector has risen again."

He added, "Disinflation in the services sector continues, but short-term inflation expectations have risen somewhat this year due to factors such as tariffs."

He said, "In the short term, inflation risks are tilted to the upside and employment risks to the downside," adding, "there is no perfectly safe policy path amid these tensions."

"Balance sheet reduced by $2.2 trillion... moving to the next normalization phase from December"

Powell said that day, "We have decided to end the reduction of holdings (QT) as of December 1," explaining, "we now judge that we have reached a level close to adequate reserves."

Powell stated, "Over the past three and a half years the balance sheet has decreased by 2.2 trillion dollars, and its share of nominal GDP fell from 35% to 21%."

He said, "From December, we will hold the balance sheet size steady for a period and transition to the next stage of 'normalization' while reserves decline gradually."

He also explained, "We will not reinvest principal payments from agency securities, and will reinvest those proceeds into Treasury bills (T-bills) to shorten the portfolio's average maturity and, over the long term, shift the balance sheet toward a portfolio concentrated in Treasury securities."

Regarding the future path of monetary policy, he drew a clear line by saying, "Nothing about additional rate cuts is decided at the December meeting."

He said, "Policy does not follow a preset path and will be decided by assessing incoming data, the changing economic outlook, and the balance of risks."

New York=Shin-young Park, correspondent nyusos@hankyung.com