ORLANDO, Florida, Oct 30 (Reuters) - Federal Reserve

Chair Jerome Powell surprised many market-watchers on Wednesday

when he declared that another interest rate cut in December was

not a slam dunk. Perhaps even more surprising was his apparent

suggestion that if boosting the labor market is the goal, rate

cuts might not be that useful.

In the press conference after the central bank lowered its

fed funds policy target range by 25 basis points, Powell cited

several reasons why a similar move in December is "far from" a

done deal. These included "strongly different" views among

rate-setters, limited data visibility due to the government

shutdown, above-target inflation, and doubts about how quickly

the labor market is slowing. He also noted that policy may be

close to neutral after 150 basis points of easing.

But perhaps the most telling reason was the most simple:

cutting rates won't work. At least, doing so won't address the

current problem, which is supporting the softening labor market.

Alluding to this, Powell admitted that the job market is

weakening primarily because of shrinking labor supply rather

than cooling demand for workers.

But lower borrowing costs are designed to boost demand for

workers. If the job market's problems are "mostly" a function of

labor supply, as Powell said, then cutting interest rates is

akin to pushing on a string.

"So the question then is what does our tool do, which

supports demand? Some people argue that this is supply, and we

really can't affect it much with our tools. But others argue, as

I do, that ... we should use our tools to support the labor

market when we see this happening," Powell told reporters.

"It's a complicated situation."

'K-SHAPED' ECONOMY

The current U.S. economic picture is indeed complicated.

Job growth has slowed in the U.S. over the past year, but

this has been offset by a steep decline in the number of people

looking for work. That's a result of the tighter immigration

controls, increased deportations, and both young people and

retirees leaving the labor force.

In the last official monthly jobs report, which was for

August, the unemployment rate climbed to a four-year high of

4.3%. But that's only one tenth of a percentage point up on the

previous year, and is still ultra-low by historical standards.

Powell also said there's no evidence of a worrisome

deterioration in the broader labor market, though the recent

announcement of some high-profile corporate layoffs may suggest

otherwise.

At the same time, economic indicators such as business

investment and retail sales still appear fairly healthy. Both

are strongly linked to the booming stock market - big companies'

rising share price and profits fund their capex, and the

asset-owning top 10% continue to drive around half of all U.S.

consumer spending.

What we appear to see taking shape is a so-called 'K-shaped'

economy: the rich are getting richer from the asset price boom,

while the rest are struggling.

This curious balance is new for the Fed and a tricky one to

navigate, especially with the government shutdown reducing

visibility even further.

Just as the Fed's blunt interest rate tool doesn't fix

supply-side issues in the jobs market, it may not do much to

support lower-income households and individuals either, even

though ensuring a stronger labor market is the "best thing" the

Fed can do for the American people.

Cheaper money is also likely to benefit the richest cohorts

by inflating asset prices even more, which may also push already

lofty valuations to unsustainable levels.

Six weeks is a long way off, but a third successive rate cut

in December is suddenly in the balance. If the subtext of

Powell's press conference is anything to go by, that may be for

the best.

(The opinions expressed here are those of the author, a

columnist for Reuters)

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(By Jamie McGeever. Editing by)