US Fed chair flags concern about sharp slowdown in job creation

WASHINGTON, UNITED STATES - US Federal Reserve Chair Jerome Powell warned Tuesday that risks to employment had risen in recent months, noting there had been a sharp slowdown of job creation in the world's leading economy.

"While the unemployment rate remained low through August, payroll gains have slowed sharply, likely in part due to a decline in labour force growth due to lower immigration and labour force participation," he told a conference in Philadelphia.

Economic growth appears to be holding up well, he added.

No official jobs data has been published for September due to the ongoing US government shutdown, but private sector figures point to a marked slowdown in hiring last month.

In mid-September, Fed officials moved to cut interest rates for the first time this year, voting overwhelmingly for a quarter-point rate reduction to help support the flagging labour market.

At the September meeting, Fed policymakers pencilled in an additional 50 basis points of cuts this year, which suggests additional action at the bank's two remaining rate decisions this year, in October and December.

"In this less dynamic and somewhat softer labour market, the downside risks to employment appear to have risen," Powell said, noting that longer-term inflation expectations remained aligned with the Fed's target of two percent.

"Rising downside risks to employment have shifted our assessment of the balance of risks," he said, adding there was "no risk-free path for policy as we navigate the tension between our employment and inflation goals."

The bank has a dual mandate from Congress to act independently to tackle both inflation and employment.

"Both supply and demand in the labour market have come down so sharply, so quickly," Powell said.

"The fact that the unemployment rate has barely moved is kind of remarkable in and of itself, and suggests that they're moving at roughly the same pace, although, of course, the unemployment rate has ticked up, which suggests that demand is moving a little faster than supply," he added.

Futures traders currently see a more than 95% chance that the Fed will cut rates by an additional half percentage pointthis year, according to data from CME Group.

Powell also hinted Tuesday that the Fed could soon stop reducing the size of its balance sheet, which ballooned in the early days of the Covid-19 pandemic as the US central bank piled into Treasuries and mortgage-backed securities (MBS) to support the economy.

"Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions," he said. "We may approach that point in coming months."