Fed on track for string of rate cuts as labor market weakens
Federal Reserve policymakers look set to kick off a series of interest rate cuts this month to shore up an increasingly fragile labor market, after a government report on Friday showed job growth nearly stalled and the unemployment rate rose in August.
While Fed Chair Jerome Powell is likely to interpret the addition of a paltry 22,000 jobs last month with caution, given the drop in immigration, the tick up in the unemployment rate to 4.3% - the highest level since October 2021 - will raise some alarm bells. With employers hiring only slowly, Powell said last month, any increase in what has been a very low rate of layoffs could lead to a sharply higher jobless rate.
More than a quarter of those out of work have now been looking for a job since at least the beginning of February, just weeks into President Donald Trump’s second term in the White House, Friday’s data showed. Unemployment for Black Americans, who typically are more vulnerable to job market downturns, jumped to 7.5%.
The Fed will get fresh inflation data next week as policymakers prepare for their September 16-17 policy meeting, and consumer price increases are expected to accelerate as Trump’s tariffs put a bigger imprint on what people pay for basic goods.
Even so, the weaker-than-expected jobs data have put concerns about deterioration of the labor market on the front-burner. The Fed has kept its benchmark interest rate in the 4.25%-4.50% range all year.
The August jobs report should cement a shift in the Fed’s thinking from worrying about inflation to focusing on labor market weakness," Bank of America economists said after the release of the jobs report. The Wall Street firm now sees quarter-percentage-point rate cuts in September and December, and a Fed policy rate of 3.00%-3.25% by the end of next year.
Source: Investing.com
