Fed Chair Powell: Labor market has cooled 'a touch more gradually' than we thought

Core Viewpoint - The decision to move on monetary policy was influenced by a gradual cooling in the labor market and inflation trends, rather than waiting until January for potential cuts [2][5]. Labor Market - Unemployment has increased by 0.3% from June to September, with payroll jobs averaging 40,000 per month since April, although there is an overstatement in these numbers by about 60,000, leading to a negative adjustment of 20,000 per month [3]. - Surveys indicate a decline in both supply and demand for workers, suggesting a continued gradual cooling of the labor market [3]. Inflation Trends - Inflation has shown a slight decrease, particularly in services, while goods inflation is primarily driven by tariffs, which account for more than half of the excess inflation [4]. - The Economic Cost Index (ECI) report suggests that the economy does not exhibit characteristics of generating high inflation, as indicated by the Phillips curve [5]. Monetary Policy Actions - The Federal Reserve has resumed reserve management purchases to maintain an ample supply of reserves, which is separate from monetary policy decisions [7][8]. - The balance sheet shrinkage, referred to as quantitative tightening (QT), has been monitored without significant issues, and the federal funds rate has increased within the expected range [6][7]. Seasonal and Structural Factors - A seasonal buildup of reserves is anticipated due to the upcoming tax period on April 15, which typically leads to a temporary drop in reserves [8][10]. - The need to maintain constant reserves in relation to the banking system and the economy necessitates an increase of approximately $20 to $25 billion per month [10].