Fed chair calls rate slash 'risk-management cut'

ISTANBUL

US Federal Reserve Chair Jerome Powell said the central bank's decision to cut the policy rate was a "risk-management cut," possibly indicating that it was an insurance move against a further slowing job market.

In response to a question about whether the decision to lower the rate can be viewed as a "risk-management cut," Powell said: "Yeah, I think you could think of this in a way as a risk-management cut."

“The marked slowing in both the supply of and demand for workers is unusual in this less dynamic and somewhat softer labor market,” he said at a post-meeting news conference.

Powell said downside risks to employment appear to have risen.

He added that the slowing in the job market is mostly due to lower immigration and lower labor force participation.

The decision to cut the rate, Powell noted, places monetary policy in a "more neutral" position as opposed to earlier descriptions of it being somewhat restrictive.

Also touching on the tariff issue and its effect on inflation, Powell said changes to government policies continue to evolve and their effects on the economy remain uncertain.

"Higher tariffs have gone to push up some prices in some categories of goods but their overall effect on economic activity and inflation remain to be seen," he said.

Powell stated that a reasonable base case is that the effects on inflation will be relatively short-lived, a one-time shift in the price level.

"But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed. Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem," he added.

The remarks followed the Fed's decision Wednesday to cut the federal funds rate by 25 basis points to between 4% - 4.25%, marking the year's first rate cut.

The central bank said it is attentive to the risks to both sides of its dual mandate and saw downside risks to employment have risen.

The US job market has shown signs of weakening in the past few months, as job additions slowed and unemployment rose to 4.3% in August.

On the inflation front, the US Producer Price Index (PPI) fell 0.1% in August -- its first monthly decline since April. The PPI rose 2.6% year-on-year, falling short of expectations.

The Consumer Price Index (CPI) rose 0.4% month-on-month in August, exceeding expectations, and rose 2.9% year-on-year, in line with expectations.

Annual inflation reached its highest since January during this period.