Powell hints at the possibility of continuing interest rate cuts this month, emphasizing that the downside risks to the labor market remain unchanged

According to the Zhitong Finance APP, Federal Reserve Chairman Jerome Powell stated that the Fed is expected to implement another 25 basis point rate cut later this month, despite the severe impact of the U.S. government shutdown on its assessment of the economic situation. In a speech at the National Association for Business Economics annual meeting on Tuesday, Powell mentioned that the economic outlook seems unchanged since policymakers lowered rates in September and anticipated two more cuts this year.

Julia Coronado, founder of research firm MacroPolicy Perspectives and former Fed economist, said, "The rate cut in October has been implemented, and there is currently no new information that changes our view that there are still downside risks in the labor market."

Powell repeatedly mentioned the slow pace of hiring and noted that this situation could worsen further. In a Q&A session following his prepared remarks, Powell stated, "The current situation is that a further reduction in job openings is likely to lead to an increase in the unemployment rate. The situation has indeed been very ideal during this period, steadily declining, but I believe we will eventually reach a stage where the unemployment rate begins to rise."

After Powell's speech, market expectations for an October rate cut did not change significantly. According to data from federal funds futures contracts, investors believe the likelihood of a rate cut is nearly 100%.

The Fed's rate cut in September was the first since December of last year, following a significant slowdown in job growth throughout the summer. However, the unemployment rate has remained relatively low, rising to 4.3% in August. Due to the ongoing government shutdown, the U.S. Department of Labor has delayed the release of the September non-farm payroll report but has recalled staff to prepare the September Consumer Price Index data for release later this month.

Yelena Shulyatyeva, a senior economist at the Conference Board, stated during a break at the National Association for Business Economics meeting, "Currently, the risks of this policy regarding employment are increasing. This will directly affect recent decisions."

The Fed is scheduled to meet again on October 28-29. Last month, the median forecast of its 19 policymakers indicated that there would be two more 25 basis point cuts this year. However, nine officials believe that one or fewer cuts would be appropriate.

Diane Swonk, chief economist at KPMG, stated that this divergence among policymakers makes Powell more cautious about the direction of interest rates next year. She said, "These signs indicate that 'we are not very clear about the long-term direction for the future.'"

The lack of a complete set of official economic data has raised concerns that the Fed may not accurately grasp the state of the economy, increasing the likelihood of policy missteps.

For the Fed, the current lack of data is indeed a tricky issue. Its responsibilities to maintain price stability and achieve full employment require it to take entirely different courses of action, as the labor market is cooling while inflation remains above the central bank's target level of 2% Powell stated that he and his colleagues are looking for other data sources from the private sector, but he also emphasized the importance of government data, calling it the "gold standard."

Powell said, "We cannot expect to fully replace the data that cannot be obtained. We are starting to miss this data, especially the data from October. If this situation continues, they will no longer collect data, and things could become more complicated."

Powell also mentioned that the Federal Reserve may stop reducing the size of its balance sheet in the coming months, a crucial shift for maintaining liquidity in the overnight funding market