Powell signals Fed is on track to keep cutting rates

Jerome Powell, the chair of the Federal Reserve, signaled further room for the central bank to lower borrowing costs this year to shore up the labor market despite the recent reacceleration in inflation.

Powell, speaking Tuesday at an event hosted by the National Association for Business Economics, deviated little from his recent message that the Fed should be responsive to the slowdown in monthly jobs growth and other signs of softness across the labor market.

While he conceded that economic activity was on a "somewhat firmer trajectory than expected," Powell stressed that "the downside risks to employment appear to have risen."

That suggests the central bank is likely to proceed with additional cuts at its two remaining meetings this year, one Oct. 28-29 and another in December.

Powell indicated an inclination to continue lowering interest rates despite the fact that the government shutdown is delaying crucial data releases, including September's jobs report.

The Bureau of Labor Statistics said last week that it would be calling back some employees to produce the consumer price index for September, which was initially set to be released Wednesday. It will now be published Oct. 24, meaning Fed officials will have it in hand before they vote on interest rates. Data collection for future reports, as well as the release of other data, will restart only once lawmakers reach an agreement to fund the government.

The Fed chair Tuesday acknowledged that the central bank was missing "important" data but said officials "routinely review a wide variety of public- and private-sector data that have remained available." He also highlighted other sources of information the Fed collects, including "a nationwide network of contacts," who he said provide "valuable insights."

In a moderated discussion after his speech, Powell said that alternative sources of data would not replace government statistics, which he called the "gold standard."

"We'll start to miss that data," he said, adding that it will become "more challenging" as the shutdown drags on and additional data is not being collected.

The lapse in official government statistics complicates what is already a difficult moment for the Fed, which is grappling with what Powell has previously described as a "no risk-free path." He reiterated that challenge Tuesday, noting that there was "tension between our employment and inflation goals."

The concern is that taking steps to protect the labor market could risk making the recent setback in inflation worse, while a move to tame price pressures could cause undue harm to the economy.

"We're in a difficult situation," Powell said.

Powell is among several policymakers at the Fed to view the recent resurgence in inflation as a temporary phenomenon. That stance rests on the assumption that President Donald Trump's tariffs will result in a one-time increase in prices across a raft of consumer goods, such as food and furniture. Those increases may take time to filter across the economy, Powell has conceded, but he expects the impact to fade.

Other proponents of that view include John C. Williams, president of the Federal Reserve Bank of New York. In an interview last week, Williams, who is a permanent voter on the policy-setting committee, said he did not see "any signs of second-round effects or factors that could be amplifying the effects of tariffs on inflation."