October Rate Cut Almost Certain? Powell: Data Vacuum Poses Challenge for Fed

On October 14 local time, against the backdrop of a US government shutdown hindering the release of economic data, Federal Reserve Chair Jerome Powell stated that the US economic outlook has remained largely unchanged since the September policy meeting. Current policy orientation has entered a period of difficult balancing: on one side, inflationary pressures have not fully abated, and on the other, the job market continues to weaken. Although Powell did not give a clear signal about the next move, market expectations widely suggest that the Fed will cut interest rates again at its late October meeting.

"There is no risk-free path now," Powell said at the National Association for Business Economics (NABE) annual meeting. "If we act too quickly, we risk undermining the fight against inflation; but if we act too slowly, the labor market could also suffer unnecessary damage."

Powell repeatedly mentioned the weakness in the labor market during his speech. He believes the US is in a phase of "low hiring, low layoffs," and the continued decline in job openings could soon be reflected in the unemployment rate. "We experienced a rare period—where job demand fell but the unemployment rate remained stable—but that situation may be nearing its limit."

The US unemployment rate rose to 4.3% in August, a new high for the past year. Due to the government shutdown, the September non-farm payroll report was forced to be delayed, further clouding the market's assessment of labor conditions. Powell stated that this information gap poses a challenge to decision-making: "We will soon start missing data, especially core data for October. If the shutdown persists, data might not even be collected."

Several attending economists believe that the downside risks to employment are becoming the focus of internal Fed attention. Julia Coronado, founder of MacroPolicy Perspectives, said, "An October rate cut is almost a done deal. The risks in the labor market are not easing; instead, they are increasing."

Yelena Shulyatyeva, senior economist at The Conference Board, believes the Fed is gradually transitioning from a "priority on fighting inflation" to a phase of "balancing growth and employment." "Current risks are more concentrated on the employment side, which will determine the policy direction in the short term."