Chairman Powell says the U.S. economy may be on a “stronger trajectory than expected”
Although the U.S. labor market remains depressed through September with few jobs and layoffs, the overall economy “may be on a somewhat stronger trajectory than expected,” Federal Reserve Chairman Jerome Powell said Tuesday.
The Federal Reserve appears poised to cut short-term interest rates again on Oct. 29 at the end of a two-day meeting as upward inflation pressures recede and job growth slows, complicated by a lack of economic data as the government shutdown continues.
Inflation rose in September and remains above the Fed’s 2% target, according to a recent report from Oxford Economics, but analysts see the risk of a cooling in the labor market as more pressing than lingering price pressures and expect the Fed to cut rates by another quarter of a percentage point.
Given the Fed’s dual mission of stabilizing prices and minimizing unemployment, Chairman Jerome Powell said in an Oct. 16 appearance at the National Association for Business Economics that there is no “risk-free” path to policy.
“The outlook for employment and inflation does not appear to have changed significantly since our September meeting,” Powell said, adding that data available before the government shutdown showed the overall economy “may be on a slightly more robust trajectory than expected.”
Will the Fed cut interest rates?
The Fed cut short-term interest rates by a quarter of a point in September, lowering the Fed’s benchmark to a range of 4% to 4.25%.
Lower rates could offset inflation by lowering borrowing costs, said Michele Ranelli, vice president and head of U.S. research and consulting at TransUnion.
“While the broader impact on consumer financial health is not yet fully understood, early signs point to increased credit activity and potential for borrower relief,” Ranelli said in a statement on Oct. 27.
James Knightley, chief international economist at ING, expects a 25 basis point (bp) rate cut on Wednesday. He expects another quarter-point rate cut in December, followed by another 50 basis point cut in early 2026.
Mr Knightley said there was a risk that companies would eventually start cutting jobs more aggressively. Amazon recently confirmed plans to cut about 14,000 corporate jobs.
“While tariff-related inflation will remain a concern in the near term, the job market is becoming a more pressing issue for the Fed,” Knightley said in an Oct. 24 memo.
As of Oct. 27, futures markets are predicting additional quarter-point rate cuts in both October and December.
Who benefits when the Fed adjusts interest rates?
When the Fed lowers interest rates, its purpose is to stimulate the economy and the job market. Lower interest rates make loans and credit more affordable, benefiting borrowers and homebuyers.
interest rate hike, Conversely, interest rates can be kept high for long periods of time to control spending to control inflation. Higher fees can help consumers by stabilizing prices.
A recent WalletHub study found that additional rate cuts could save consumers more than $1 billion combined, but most consumers don’t care. It found that more than half of respondents felt that an additional quarter-point cut would not make a difference in their lives.
Dimitri Silva, managing director and head of global rates and foreign exchange at Reams Asset Management, said changes in interest rates take time to ripple through the economy, often six months to a year.
For the average American, Silva said, lower interest rates mean less interest paid on credit cards, car loans and mortgages, making debt a little easier to manage.
He added that the cuts are an important driver of job creation and will help small businesses struggling to survive high borrowing costs.
What data is the Fed using during the government shutdown?
The October meeting will be held amid a data blackout due to the government shutdown, which delayed the September employment report and halted most data collection at the Bureau of Labor Statistics.
The agency still released the September consumer price index needed to calculate the 2026 Social Security cost of living adjustment. It said consumer prices rose 3% year-on-year, up slightly from 2.9% in August. On a monthly basis, expenses increased by 0.3% following a 0.4% increase in the previous month.
But Powell said the Fed is turning to alternative data sources as official numbers decline. But the data is not as effective as what the federal government typically provides, he said.
He said this includes state-level unemployment claims reports and ADP’s national employment report, which revealed that private U.S. employers cut 32,000 jobs in September.
“The alternative data we’re considering is best used as a supplement to the underlying government data that is the gold standard,” Powell said on October 16. “As a supplement, it’s probably not going to be as effective as the main course.”
What about the overall US economy?
The Federal Reserve heads into its October meeting amid heightened uncertainty.
In addition to data delays, the government shutdown has led to delayed paychecks for federal employees and contractors, as well as disruptions to services such as the Supplemental Nutrition Assistance Program. Although closures are unlikely to have a lasting impact on the economy, they could slow GDP and put a strain on local economies.
Meanwhile, President Donald Trump’s tariff policy continues to fluctuate.
Separately, mortgage interest rates have also fallen, giving some sense of security to those considering buying a home.
At the same time, consumer confidence continues to decline, dropping to 53.6 in October, from 70.5 a year ago, according to the University of Michigan index.
Contact Rachel Barber at rbarber@usatoday.com and follow her at X @rachelbarber_
