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Federal Reserve Chair Jerome Powell outlined how the central bank is viewing the labor market after it cut interest rates last week for the third straight time, with a fresh jobs report due out on Tuesday.

Powell spoke at a press conference after Federal Reserve policymakers voted to lower the benchmark federal funds rate by 25 basis points to a range of 3.5% to 3.75%, amid signs of a weakening labor market and emerging risks to the half of the Fed's dual mandate that focuses on promoting maximum employment.

Powell noted that the most recent jobs report from the Bureau of Labor Statistics (BLS) was released for September and showed that the unemployment rate "continued to edge up, reaching 4.4%, and that job gains had slowed significantly earlier in the year."

"A good part of the slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened as well. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months," Powell said.

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The Fed's latest decision was accompanied by a summary of economic projections, commonly known as the "dot plot," showing the unemployment rate rising to 4.5% at the end of 2025 before edging down from there to 4.4% next year.

Powell said that the Fed doesn't anticipate a sharper downturn in the labor market and the current interest rate policy is close to neutral, which should support the labor market to prevent a more significant deterioration.

"The idea is that, now with having cut 75 basis points more now, and having policy in a broad range of plausible estimates of neutral, that will be a place which will enable the labor market to stabilize or to only tick up 1 or 2 more tenths. But we won't see any kind of a sharper downturn, which we haven't seen any evidence of at all," the chairman said.

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Powell noted that payroll growth has slowed to an average of about 40,000 per month since April and that policymakers see an overstatement of about 60,000 in those monthly jobs numbers – meaning that monthly jobs figures would average -20,000 over that period.

"I don't think this is particularly controversial. It's very difficult to estimate job growth in real time, they don't count everybody, they have a survey and there's been something of a systematic overcount. We expect it, and they correct it twice a year. So the last time they corrected it, we thought the correction would be eight or nine hundred thousand… and that was exactly what happened. We think that has persisted," Powell added.

Two policymakers dissented from the Fed's rate cut decision in favor of leaving interest rates unchanged amid uncertainty over the economy, including the outlook for inflation.

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Chicago Fed President Austan Goolsbee said in a statement that he "felt the more prudent course would have been to wait for more information."

"If the labor market were deteriorating rapidly, it would be a different calculation. But most of the data we have show stable economic growth with a labor market only moderately cooling and with measures comparable to those in previous expansions," Goolsbee said. "An environment that can be characterized as 'low hiring/low-firing' is more consistent with businesses dealing with continued uncertainty than it is with a conventional business cycle slowdown."

Kansas City Fed President Jeffrey Schmid also dissented in favor of holding rates steady, writing that "inflation remains too high, the economy shows continued momentum, and the labor market – though cooling – remains largely in balance."

The BLS is scheduled to release the November jobs report on Tuesday, which LSEG economists project will show 40,000 jobs were added for the month.

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BLS has said that it won't release a jobs report for the month of October, as its data collection activities were adversely affected by the government shutdown, and it wasn't practical to retroactively gather that data once the shutdown ended in mid-November. Some October data that is available will be included in the November report.