Powell sees cooler US hiring in possible hint of rate cuts

Powell speaks in Denver

While the Fed relies on economic statistics to determine its policy steps, Mr Powell noted that revised data showed recent U.S. job creation was significantly weaker than previously reported.

To reinforce his point, Powell added a quote from Marriner, who served as Fed Chairman from 1934 to 1948. This is not a formal return to quantitative easing (QE) policy, but could be viewed as a half-step measure in that direction.

The Fed has shifted its stance since late a year ago, cutting the federal funds rate by 50 basis points at its last two meetings.

"While a range of factors may have contributed to these developments, it is clear that without a sufficient quantity of reserves in the banking system, even routine increases in funding pressures can lead to outsized movements in money market interest rates", Powell said.

Markets have been waiting for the Fed to decide what permanent policies it might put in place to avoid the sort of disruption that occurred recently, when reserve shortages pushed the target federal funds rate to the top of the range set by the central bank - a situation that could disrupt the Fed's goals for monetary policy if it became a regular feature of financial markets.

The Fed has cut interest rates twice this year to shelter the US economy from weak global growth and trade-policy uncertainty.

Powell was noncommittal on what the Fed's next move would be. The Fed's next policy meeting is several weeks away "and we will be carefully monitoring incoming information", Mr. Powell said.

With regard to monetary policy, Powell reiterated his pledge to "act as appropriate" to support continued growth, a strong job market, and inflation moving back to the Fed's symmetric 2 percent objective.

Other recent economic data, including a possible contraction in manufacturing, add to the sense of reduced momentum.

As Powell has stated before the US economic outlook is favorable, but there are risks to that outlook, mostly from global developments.

Mr Powell's remarks suggest the case for further cuts to the Fed's benchmark lending rates could be weakening, with employment data now showing the U.S. jobless rate fell to its lowest level in 50 years in September. The September jobs report showed a gain of 136,000 positions and unemployment falling to 3.5%. Nonfarm payrolls grew by an average of 157,000 per month in the third quarter, compared with gains above 200,000 earlier in the expansion.

Money markets were roiled last month as a combination of corporate tax payments and the settlement of Treasury debt purchases temporarily sent short-term interest rates skyrocketing.

"As we indicated in our March statement on balance sheet normalization, at some point, we will begin increasing our securities holdings to maintain an appropriate level of reserves", he added.

A jump in gas prices probably can be absorbed and likely would have little overall impact, he said.

The Fed announced last week that it will extend through October the ad hoc liquidity lifeline that it has been offering to USA funding markets since then. "That time is now upon us".

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