Weak Jobs Report Strengthens Case for Fed to Cut Interest Rates

A weaker than expected jobs report solidifies the case for the Federal Reserve to restart interest rate cuts after a long pause at its meeting later this month, quelling debate that had emerged this summer as inflation risks also intensified.

Officials have faced difficult decisions over the trajectory for interest rates amid mixed economic signals. Monthly jobs growth has sharply slowed alongside business activity, but the unemployment rate has stayed relatively stable and layoffs remain low. Meanwhile, price pressures tied to tariffs have raised inflation, although not as much as initially feared.

That has created a conundrum for the Fed. Policymakers do not want to wait too long to lower interest rates for fear of causing undue harm to the labor market. But they also do not want to provide relief prematurely and risk allowing inflation to intensify. Rates are now set in a range of 4.25 to 4.5 percent.

Jerome H. Powell, the Fed chair, sought to find some middle ground in a speech late last month, sending his strongest signal yet that rate cuts were coming. Still, he made clear that officials would proceed slowly with those reductions.

“The balance of risks appears to be shifting,” Mr. Powell said in his final speech as Fed chair at an annual conference hosted by the Reserve Bank of Kansas City in Jackson, Wyo. With borrowing costs weighing on the economy, the labor market softening and inflationary pressures more contained than initially feared, “the shifting balance of risks may warrant adjusting our policy stance,” he said.

Mr. Powell stressed that the labor market was in a “curious kind of balance,” with demand for new hires slowing and the supply of available workers contracting as a result of President Trump’s immigration restrictions.