Jerome Powell’s Pivotal Remarks: Why the Fed is Prioritizing Employment with More Rate Cuts on the Horizon

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Federal Reserve Chair Jerome Powell has delivered a clear message: a sharp slowdown in U.S. hiring poses a significant risk to the economy, solidifying expectations for at least two more key interest rate cuts this year. This strategic pivot, prioritizing employment stability, signals a crucial shift for investors watching everything from mortgage rates to business growth.

In a recent address to the National Association of Business Economics in Philadelphia on Tuesday, October 14, 2025, Federal Reserve Chair Jerome Powell indicated that despite a federal government shutdown impacting official economic data, the outlook for employment and inflation remains largely consistent with the Fed’s September meeting. This assessment reinforces the central bank’s commitment to further monetary easing, setting the stage for significant market adjustments.

The Fed’s September meeting marked the first rate reduction this year, and officials then forecast two more cuts in 2025, followed by another in 2026. This trajectory of lower rates is designed to reduce borrowing costs across the board, impacting mortgages, car loans, and business financing, ultimately aiming to stimulate economic activity and hiring.

The Fed’s Shifting Mandate: Jobs Over Prices?

Powell reiterated a crucial message first delivered after the September meeting: the Federal Reserve is now “slightly more worried about the job market” than its other congressional mandate, which is to keep prices stable. This rebalancing of priorities is a significant signal for investors and economists alike.

While tariffs have pushed the Fed’s preferred measure of inflation to 2.9%, Powell emphasized that, excluding these duties, there are no “broader inflationary pressures” likely to sustain high prices. His statement, “rising downside risks to employment have shifted our assessment of the balance of risks,” underscores the central bank’s proactive stance against potential labor market weakening.

Economists like Michael Feroli, Chief U.S. Economist at JPMorgan Chase, see Powell’s remarks as strong confirmation of impending rate cuts, with the next likely action at the October 28-29 meeting. This consensus among market analysts highlights the weight of the Fed Chair’s statements in shaping market expectations.

Balance Sheet Adjustments and Long-Term Implications

Beyond interest rates, Powell also hinted at a potential halt to the ongoing reduction of the Fed’s substantial $6.6 trillion balance sheet. Currently, the Fed allows approximately $40 billion of Treasuries and mortgage-backed securities to mature each month without replacement. A cessation of this “quantitative tightening” could further contribute to slightly lower borrowing costs over time, impacting long-term Treasury yields as estimated by economists at BMO Capital Markets.

Jerome Powell’s Pivotal Remarks: Why the Fed is Prioritizing Employment with More Rate Cuts on the Horizon
The Federal Reserve’s balance sheet strategy is a key topic for market participants.

Defending Past Actions: Quantitative Easing Under Scrutiny

A significant portion of Powell’s speech was dedicated to defending the Fed’s controversial practice of buying longer-term Treasury bonds and mortgage-backed securities in 2020 and 2021. These “quantitative easing” (QE) measures were implemented to lower long-term interest rates and provide critical support to the economy during the COVID-19 pandemic. However, these purchases have drawn sharp criticism.

Treasury Secretary Scott Bessent has been a vocal critic, arguing in an extended critique published earlier this year that the massive bond purchases exacerbated inequality by inflating the stock market without providing significant benefits to the broader economy. Other critics contend the Fed maintained QE for too long, keeping interest rates artificially low even as inflation began its ascent in late 2021.

In response to these critiques, Powell admitted, “with the clarity of hindsight, we could have—and perhaps should have—stopped asset purchases sooner.” However, he maintained that the real-time decisions were made as “insurance against downside risk,” and that an earlier cessation would likely not have “fundamentally alter[ed] the trajectory of the economy” or prevented the COVID-era inflation spike. He also highlighted that the purchases were vital to avert a breakdown in the Treasury securities market, which could have led to much higher interest rates.

For a detailed perspective on Secretary Bessent’s arguments against the Fed’s pandemic-era bond purchases, investors can review his extended critique as published in The International Economy.

The Debate Over Interest on Reserves

Powell also addressed a bipartisan legislative effort to prevent the central bank from paying interest on the cash reserves banks deposit at the Fed. This measure, supported by senators like Rand Paul (R-Kentucky), Ted Cruz (R-Texas), and Elizabeth Warren (D-Massachusetts), was ultimately defeated in the Senate by a significant margin of 83-14.

Powell strongly argued that without the ability to pay interest on reserves, the Fed “would lose control over rates” and be unable to effectively execute its monetary policy mission. This mechanism is crucial for the Fed to either cool borrowing and spending to curb inflation by lifting short-term rates or to stimulate growth and hiring by cutting them. Understanding the nuances of these tools is critical for any investor tracking Fed policy.

The Federal Reserve’s official statements, including Chairman Powell’s speech, provide direct insight into these policy discussions and the central bank’s economic outlook. For his full remarks, refer to the Federal Reserve’s website.

What This Means for Investors: A Long-Term View

The Fed’s pronounced shift towards prioritizing employment risks signals a more accommodative monetary policy environment. For investors, this could translate into several key considerations:

  • Lower Borrowing Costs: Expected rate cuts will make credit cheaper, potentially boosting demand for housing, autos, and supporting business expansion.
  • Equity Market Support: Historically, lower interest rates can make equities more attractive compared to fixed-income investments, potentially providing a tailwind for stock valuations.
  • Bond Market Dynamics: The potential halt in balance sheet shrinkage, combined with rate cuts, could put downward pressure on longer-term Treasury yields, impacting bond portfolios.
  • Sector Opportunities: Industries sensitive to interest rates, such as real estate, automotive, and capital-intensive sectors, might see increased activity.

As the Fed navigates these economic crosscurrents, closely monitoring official communications and market reactions will be essential for making informed investment decisions. The pivot towards employment underscores a proactive approach to economic stability, which, in the long run, aims to foster sustainable growth.

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