Powell is not "eager" to cut interest rates quickly, but his patience is about to be tested!

Federal Reserve Chairman Powell has made it clear that the Fed is not in a hurry to lower interest rates and is more inclined to make a small rate cut. However, this patience will be tested this autumn in the face of a series of highly anticipated employment reports set to be released starting this Friday.

If any new signs of deterioration in the job market emerge, even if policymakers expect rate cuts of 25 basis points in November and December respectively, the Fed may be forced to make another significant rate cut after an initial 0.5 percentage point cut.

The massive port closures caused by dockworker strikes and the damage caused by hurricanes could also add new complexity to this calculation.

The latest employment market data to be released on Friday is expected to reinforce the trend of moderate cooling. Economists predict that 146,000 jobs were created last month, with the unemployment rate remaining unchanged at 4.2%. This report is broadly in line with the creation of 142,000 jobs in August.

The focus may be on any revisions to previous employment reports, which have been consistently revised downward. For example, the surprisingly weak job report in July was further revised to only 89,000 jobs.

Investors will closely watch whether the downward revisions in August continue, which could be another sign that the job market is not as robust as initially thought.

Richmond Fed President Barkin said on Wednesday that the job market remains in a "good state," noting an average monthly increase of 116,000 jobs over the past three months. He acknowledged that the hiring rate has fallen to 2013 levels, jobs continue to be revised downward, and sectors recovering from pandemic shortages like healthcare are slowing in growth.

"However, while employers are not actively hiring, they are also not laying off: the layoff rate is near a 25-year low, and the number of initial claims for unemployment benefits remains low," Barkin said. This low hiring - low firing environment is unlikely to continue, but I can also say it could evolve in either direction."

Earlier this week, Powell said the Fed's rate-setting committee is expected to continue lowering rates at a cautious pace.

"This is not a committee that is eager to lower rates quickly," Powell said in his speech at the annual conference of the National Association for Business Economics. He also reiterated that the consensus among Fed officials outlined at the September meeting was to cut rates twice more this year, each time by 25 basis points.

Powell said, "This does not mean there will be more 50 basis point rate cuts." However, he added that if the economic slowdown exceeds expectations, the committee can lower rates more quickly. He said, "We will do what is necessary based on the pace of action."

The Fed may encounter more complexity in the October employment report to be released before the meeting on November 6th and 7th. The report may show temporary weak job growth due to dockworker strikes, technical worker strikes affecting Boeing aircraft production, and the impact of hurricanes.

J.P. Morgan economists estimate that the closure of East Coast and Gulf Coast ports could result in economic losses of $3.8 billion to $4.5 billion per day, some of which can be recovered after normal operations resume TD Cowen analyst Chris Krueger quoted estimates that it would take up to six days for ports to return to normal functionality for each day of a strike. A three-day strike would require 18 days to resolve.

Some observers suggest that the impact of strikes and storms will be temporary, and unless more fundamental changes occur, the Fed may overlook this.

EY senior economist Lydia Boussour said, "Any significant weakening in wage growth and a sharp rise in unemployment could lead Fed policymakers who rely on data to lean towards cutting rates by another 50 basis points."

Jan Hatzius, chief economist at Goldman Sachs, stated that for the port strike to affect October wage growth, it must persist throughout the entire period of the labor department's employment survey.

Hatzius mentioned that if the strike continues into the reference period, it would directly result in a reduction of 45,000 job positions in October—equivalent to the number of striking dockworkers, but the effect would reverse after the strike ends.

However, Neil Dutta, head of economic research at Renaissance Macro Research, expects two significant rate cuts of 50 basis points each in November and December due to the complexity brought by the strike and hurricane damages.

Dutta said, "Yes, these issues may be temporary and more evident in business surveys than household surveys, but given the risk balance, I believe the Fed should not overlook them. Since inflation issues have been resolved, why take the risk?"