Volkswacht Bodensee - US Fed chair flags concern about sharp slowdown in job creation

"While the unemployment rate remained low through August, payroll gains have slowed sharply, likely in part due to a decline in labor force growth due to lower immigration and labor 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 voted to cut interest rates for the first time this year, voting overwhelmingly for a quarter-point rate reduction to help support the flagging labor market.

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

"In this less dynamic and somewhat softer labor 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.

Futures traders currently see a more than 95-percent chance that the Fed will cut rates by an additional half percentage point this 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."

U.Maertens--VB