The Federal Reserve signaled a possible near-term interest-rate cut amid a marked slowdown in job growth. Stock markets reacted sharply, with the Dow rising nearly 900 points in the first hour after the Fed's signal. Tariff-related price increases are occurring, but the magnitude and persistence of those effects remain uncertain. Immigration restrictions and rapid retirements of baby boomers are slowing workforce growth, producing an unusual balance of softened labor supply and demand. That balance raises downside risks to employment that could materialize quickly as higher layoffs and rising unemployment. Policymakers will continue monitoring inflation and labor data before adjusting policy.
Speaking to a gathering of economists and central bankers in Jackson Hole, Wyo., Powell said current economic conditions, including a marked slowdown in job growth, suggest a downward adjustment in the Fed's benchmark rate may be warranted. Powell stopped short of promising a rate cut at the next Fed meeting in September, saying he and his colleagues will continue to monitor incoming data on both inflation and job growth.
With more than 10,000 baby boomers retiring each day, and far fewer immigrants coming into the country, the U.S. workforce is expected to grow slowly or not at all. "While the labor market appears to be in balance, it's a curious kind of balance that results from a marked slowing in both the supply of and demand for workers," Powell said. "This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly, in the form of sharply higher layoffs and rising unemployment."
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