Federal Reserve Chair Jerome Powell signaled that the central bank could soon ease its monetary policy, suggesting the possibility of more rate cuts and a halt to the ongoing sell-off of assets as officials assess the health of the U.S. economy.
Addressing the 67th annual meeting of the National Association for Business Economics, the 72-year-old indicated that while no specific timeline has been set, the Fed's next steps are likely to include further interest rate reductions.
“Based on the data that we do have, it is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago,” Powell said. He noted the challenge of navigating policy decisions without key government data, which has been unavailable because of a government shutdown, forcing the central bank to rely on alternative information sources.
Nevertheless, Powell pointed to earlier data showing that economic activity may be on a firmer trajectory than previously anticipated. He acknowledged, however, that the pace of payroll growth has “slowed sharply,” attributing the trend in part to declines in both immigration and labor force participation. This slowdown, Powell suggested, could mean the labor market is facing increased risks—a dynamic that typically draws the Fed’s attention toward supporting job creation and possibly lowering rates to bolster demand for workers.
A central component of the Fed’s approach is its balance sheet, which it uses to manage market liquidity. Having previously reduced purchases of Treasury securities to temper inflation, the central bank is now contemplating the end of its asset runoff as reserves near levels considered adequate for a stable financial system.
“Our long-stated plan is to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions,” Powell said. “We may approach that point in coming months.”
On inflation, Powell noted a recent uptick in near-term expectations, pointing out that the latest round of price increases appears to be driven more by tariffs than by underlying inflation pressures—an important distinction that could justify measures to stimulate hiring. The Fed is also considering adjusting its portfolio by shifting from longer-term to shorter-term Treasury holdings, a move that could affect credit markets. Selling more long-term Treasuries would increase their supply and likely lower their prices, pushing yields higher. Any such rise in yields, notably for the 10-year Note, would in turn raise the foundational rates for commercial and residential mortgages.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.