FED: Powell Plays Up Employment Risks In Eyeing Potential Policy Adjustment

The major near-term policy signal takeaway from Fed Chair Powell's Jackson Hole keynote (link) is that he only acknowledges that "with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance", but also that the risks appear to have shifted since the July meeting ("The balance of risks appears to be shifting"), as "downside risks to employment are rising. 

• "while the labor market appears to be in balance, it is a curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment."
• That said this isn't a million miles away from what he said at the July FOMC press conference, when he also flagged up "downside risk" to the labor market as "the fact that it’s getting into balance due to declines in both supply and demand". The difference is that with the July employment report in hand, he seems to be suggesting that the "shifting" balance of risks is tilting toward the need for an adjustment:
• "Our policy rate is now 100 basis points closer to neutral than it was a year ago, and the stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance. Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance."
• Note that the mention of "balance of risks" is also a key policy signal because it's in the Fed's Statement as as part of the forward guidance sentence ("In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.")
• Note also that Gov Waller's case for making a cut also largely adopted this rhetoric, saying in mid-July that the labor market was "on the edge" and saying that "with hiring already low...a larger and more sudden reduction in payrolls and an increase in the unemployment rate are a risk." So it seems Powell's outlook is moving in that direction.