Fed's Powell points to persistent labor market weakness as government shutdown delays official repor

Federal Reserve Chair Jerome Powell on Tuesday said that the economy continues to see a softening of the labor market despite the government shutdown delaying the release of official jobs and inflation data.
Powell spoke at the National Association of Business Economists (NABE) after receiving the Adam Smith Award for his work on applying economic principles in policy. The Fed chair said while the September jobs report and inflation data, available data suggests that the sluggish labor market and tariff-induced inflationary pressures are persisting.
"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," Powell said. "In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen." 
"While official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue their downward trajectories," he said.
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The chairman said that one of the challenges in tracking the labor market is that "both supply and demand in the labor market have come down so sharply, so quickly."
He noted that it's "kind of remarkable" that the unemployment rate has barely moved, though he noted it has ticked slightly higher, which suggests demand is declining faster than supply.
Powell went on to discuss inflation, which has remained above the central bank's 2% target and has trended higher in recent months due to the impact of tariffs.
"Available data and surveys continue to show that goods price increases primarily reflect tariffs rather than broader inflationary pressures," Powell said in his remarks. "Consistent with these effects, near-term inflation expectations have generally increased this year, while most longer-term expectation measures remain aligned with our 2% goal."
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The Fed chair noted that inflation "appears to be continuing to increase, quite gradually, but increase - it's still on the way up, so there's a risk there that that would lend to greater persistence."
Powell reiterated his prior comments that there isn't a risk-free path forward for the Fed and the economy given data suggesting risks of inflation rising and employment declining, which puts the Fed's dual mandate of stable prices and maximum employment in tension.
"Those two states of affairs for our two goal variables call for different monetary policy responses," he noted. 
Typically, with inflation on the rise, the Fed would be looking to raise interest rates to get inflation down to 2%, as it's currently closer to 3%. In contrast, a weakening labor market would prompt the Fed to look at cutting rates to support economic activity.
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The Federal Reserve cut rates for the first time this year in September despite inflation trending further from target, and Powell noted that presents a risk of the Fed having to go back to address inflation if cuts continue in an effort to boost the labor market.
"It is clear, though, that if we move too quickly, then we may leave the inflation job unfinished and have to come back later and finish. If we move too slowly, there may be unnecessary losses, painful losses in the employment market," Powell explained.
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"We're in the difficult position of balancing those two things. I think for the last few months we've been able to maintain a restrictive stance because the labor market was still pretty solid," Powell said.
"I think that the data that we got right after the July meeting, which adjusted all the way back to May, showed that the labor market has actually softened pretty considerably and puts us in a situation where the two risks are closer to being in balance," he added.


via: https://www.foxbusiness.com/economy/feds-powell-points-persistent-labor-market-weakness-government-shutdown-delays-official-reports