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By Howard Schneider PHILADELPHIA (Reuters) -The U.S. labor market remained mired in its low-hiring, low-firing doldrums through September, though the economy "may be on a somewhat firmer trajectory than expected," Federal Reserve Chair Jerome Powell said on Tuesday, noting that policymakers will take a "meeting-by-meeting" approach to interest rate cuts as they balance job market weakness with above-target inflation. Powell, in remarks to a National Association for Business Economics conference in Philadelphia, acknowledged the economic dilemma that has split U.S. central bank officials almost evenly among those concerned most about still-high and potentially rising inflation, and those worried the labor market may be facing a fast slide downward. A newly added complication, Powell said, is that recent data on economic activity have been stronger than expected, but that hasn't yet translated into renewed hiring strength. "You do have a bit of tension between labor market data – we see very low levels of job creation – and yet people are spending," Powell said. "We are going to have to see how that plays out." The analysis, for now, will be done in the absence of official data largely suspended by the U.S. government shutdown. Powell said he felt there was adequate insight for the Fed's coming October 28-29 meeting, but that "we'll start to miss that data, particularly October data," if the shutdown persists. But for the time being, Powell said, there is a broad-enough array of public and private information to make a policy judgment, with the Bureau of Labor Statistics recently told by the Trump administration that it could release its Consumer Price Index report for September. It is now due to be published on October 24, ahead of the Fed's next policy meeting. "Based on the data that we do have, it is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago," at which the Fed cut its benchmark interest rate by a quarter of a percentage point, Powell said. "Data available prior to the shutdown, however, show that growth in economic activity may be on a somewhat firmer trajectory than expected." His remarks did not change the near unanimous consensus among investors that the Fed would cut its policy rate by another quarter of a percentage point in two weeks. Powell is "saying that the economy is on solid footing, but he's also saying we have weakness … He's preparing the markets for a series of rate cuts, but not necessarily in a sequential order," said Peter Cardillo, chief market economist with Spartan Capital Securities in New York. "He'll cut by 25 basis points at the end of this month, then they'll assess." 'NO RISK-FREE' POLICY PATH Powell noted the "healthy debate" within the Fed, reflected in recent projections that showed about half of its policymakers expecting only one or no more rate cuts this year, and the rest projecting two or more. It's a sign of the tradeoffs the Fed is facing between securing its 2% inflation target and protecting the job market. "There is no risk-free path for policy as we navigate the tension between our employment and inflation goals," Powell said, noting that the policy projections issued by Fed officials every three months "should be understood as representing a range of potential outcomes whose probabilities evolve as new information informs our meeting-by-meeting approach to policymaking." Even with the September jobs report delayed, Powell, who devoted most of his formal remarks on Tuesday to a discussion of Fed balance-sheet policy, said he drew from a variety of public and private data sources for insight on the job market. "While official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households' perceptions of job availability and firms' perceptions of hiring difficulty continue their downward trajectories," Powell said. The elevated inflation, he said, was partly due to rising goods prices that "primarily reflect tariffs rather than broader inflationary pressures." (Reporting by Howard Schneider; Editing by Paul Simao)

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(Reuters) -OpenAI will allow mature content for ChatGPT users who verify their age on the platform starting in December, CEO Sam Altman said, after the chatbot was made restrictive for users in mental distress. "As we roll out age-gating more fully and as part of our 'treat adult users like adults' principle, we will allow even more, like erotica for verified adults," Altman wrote in a post on X on Tuesday. Altman said that OpenAI had made ChatGPT "pretty restrictive" to make sure it was being careful with mental health issues, though that made the chatbot "less useful/enjoyable to many users who had no mental health problems." OpenAI has been able to mitigate mental health issues and has new tools, Altman said, adding that it is going to safely relax restrictions in most cases. In the coming weeks, OpenAI will release a version of ChatGPT that will allow people to better dictate the tone and personality of the chatbot, Altman said. "If you want your ChatGPT to respond in a very human-like way, or use a ton of emoji, or act like a friend, ChatGPT should do it (but only if you want it, not because we are usage-maxxing)," according to Altman. Earlier on Tuesday, Meta unveiled a new system to limit what users under 18 can see on Instagram and its generative AI tools, using filters inspired by the PG-13 movie rating system. (Reporting by Juby Babu in Mexico City; Editing by Alan Barona)

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By Michael S. Derby (Reuters) -Federal Reserve Chair Jerome Powell said on Tuesday the end of the central bank’s long-running effort to shrink the size of its holdings, widely known as quantitative tightening, or QT, may be coming into view. Given the central bank’s long-running goal of leaving enough liquidity in the financial system to allow for firm control of short-term rates and normal money market volatility, Powell said “we may approach that point in coming months, and we are closely monitoring a wide range of indicators” to know if that has happened. As a signal the end stage is getting closer, "some signs have begun to emerge that liquidity conditions are gradually tightening, including a general firming of repo rates along with more noticeable but temporary pressures on selected dates,” Powell said at a gathering held by the National Association for Business Economics in Philadelphia. In his remarks, Powell also defended the central bank's use of the balance sheet and other tools for monetary policy. The endgame for QT has been a topic of market debate for some time but has gained urgency over recent weeks as the Fed's reverse repo facility, or RRP, has fallen to effectively near-zero usage. The RRP tool helps set a soft floor underneath short-term rates and assists the Fed in keeping its interest rate target within the desired range, now set at between 4% and 4.25%. That facility peaked at $2.6 trillion at the end of 2022. The RRP facility has largely existed to mop up the excess liquidity the Fed created during the pandemic and now that it has been effectively drained out, QT will now lower reserves. The further reserves fall, the more likely liquidity scarcity could emerge with little warning and rattle money markets, in turn complicating the Fed's ability to keep its monetary policy interest rate target where it wants it to be. Something like that played out in September 2019 during the last period of QT, forcing the Fed to intervene unexpectedly to add liquidity back to the system. Since then, the Fed has added something called the Standing Repo Facility – it provides fast cash loans to eligible financial firms – as a shock absorber for market liquidity needs. Money markets and the Fed got through the end of the third quarter smoothly, with markets not needing to turn to the Fed for liquidity needs in any substantial size.  STILL NOT ENTIRELY CLEAR WHEN QT MIGHT END The QT process, which has been running since 2022, is designed to remove excessive amounts of liquidity the Fed added to financial markets during the COVID-19 pandemic. Cash was pumped into the financial system via large-scale purchases of Treasury and mortgage bonds, which were aimed at stabilizing markets and providing stimulus when the Fed’s short-term rate target was at near-zero levels. The asset buying helped Fed holdings more than double to around $9 trillion. Allowing a set amount of bonds to mature each month and not be replaced has helped take the Fed balance sheet down to $6.6 trillion. It’s unclear how much further the Fed can go with QT but some officials have said there remains plenty of liquidity in the financial system. Powell did not say how far the Fed would be able to shrink its holdings. A survey of large banks, money managers and others conducted before the Fed's September 16-17 Federal Open Market Committee meeting projected a January 2026 end-date for QT, with the overall size of the Fed's balance sheet at $6.2 trillion. Survey respondents also said they saw bank reserve levels at $2.9 trillion from their current level of $3 trillion.   FED CHIEF DEFENDS USE OF BALANCE SHEET, OTHER TOOLS Powell noted in his remarks that broadly speaking, "our ample reserves regime has proven remarkably effective for implementing monetary policy and supporting economic and financial stability.” The Fed's usage of its balance sheet as a policy tool, as well as the tools it uses to help manage interest rates, has been controversial, no less so than with the current Trump administration. Treasury Secretary Scott Bessent has accused the central bank of broad mission creep with the use of the balance sheet, which he believes has distorted financial markets.  The Fed has also caught heat for its interest rate management tools, which have paid out so much money to eligible financial firms that the Fed is now managing a $244 billion loss, causing some politicians to weigh whether those powers should be removed. Powell cautioned against such a move, saying "if our ability to pay interest on reserves and other liabilities were eliminated, the Fed would lose control over rates." To get it back, "large sales of securities over a short period of time would be needed to shrink our balance sheet and the quantity of reserves in the system," Powell said, adding "the volume and speed of these sales could strain Treasury market functioning and compromise financial stability."  (Reporting by Michael S. Derby; Editing by Andrea Ricci)

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