Email
\n <\/a><\/p>\n
Link<\/p>\n
Washington
\n \u00a0\u2014\u00a0<\/p>\n
\n With a pivotal Federal Reserve meeting coming up this week, America\u2019s central bankers are confronted with an all-too-familiar question: Is it already too late to step in?\n <\/p>\n
\n In just a few days, the central bank is expected to lower interest rates for the first time since December to shore up America\u2019s crumbling labor market. Unusually weak hiring in recent months<\/a> has locked in a rate cut, according to futures, with perhaps a few more by year\u2019s end. But some central bankers \u2014 namely, Fed governors Christopher Waller and Michelle Bowman, both appointed by President Donald Trump \u2014 say the Fed should have cut interest rates in July, echoing Trump\u2019s loud demands to lower borrowing costs.\n <\/p>\n \n During a speech in Miami on August 28, Waller \u2014 a potential Fed chair candidate<\/a> \u2014 said monetary policy risks \u201cfalling behind the curve\u201d if economic conditions continue to weaken.\n <\/p>\n \n Fed officials wait for months of data before deciding to pivot on rates, but it\u2019s notoriously difficult to time with razor-sharp precision. That timing is crucial because it can impact the jobs of millions of Americans and whether inflation shoots higher. In 2021, the Fed was criticized for responding too late to rising inflation.\n <\/p>\n \n In 2025, getting the timing right for rate cuts is an even tougher task with Trump\u2019s widespread tariffs already pushing up some prices<\/a> and the US labor market hitting a lull in hiring.\n <\/p>\n \n And whether the Fed has already missed its cue is \u201cthe million-dollar question that I think no one knows the answer to,\u201d Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, told CNN.\n <\/p>\n \n Economic forecasters don\u2019t always get it right \u2014 and neither does the Fed.\n <\/p>\n \n In 2021, some economists and Fed officials, including Fed Chair Jerome Powell, said a bout of inflation would prove to be only \u201ctransitory,\u201d which ended up not being the case. And, in 2023, forecasters and Fed economists predicted a recession that never happened.\n <\/p>\n \n \u201cThe Fed isn\u2019t any better at reading the tea leaves than all the other private forecasters out there,\u201d said Kent Smetters, an economics professor at the University of Pennsylvania\u2019s Wharton School.\n <\/p>\n \n The central bank has to factor in abstract concepts, such as the lagging effects of interest rates and the so-called neutral rate of interest, the point where borrowing costs neither stimulate nor dampen economic activity.\n <\/p>\n \n \u201cMonetary policy lags in terms of how much it stimulates the economy, so, ideally, it should move a couple months ahead of weaker jobs numbers,\u201d said Smetters. \u201cBut the Fed also can\u2019t place a lot of weight on data for a single month or even two.\u201d\n <\/p>\n \n Last year, the unemployment rate climbed quickly in a short period and there was similar criticism that the central bank was too late to lower rates. Then the Fed stepped in with a bold half-point rate cut to stave off further weakening.\n <\/p>\n \n By the end of last year, it turned out that the labor market wasn\u2019t falling off a cliff: In December, employers added a massive 323,000 jobs as the unemployment rate edged down from the prior month to 4.1%.\n <\/p>\n \n The Fed\u2019s efforts last year showed that despite central bankers\u2019 good-faith attempts to right-size their policy in a timely manner, there isn\u2019t a science to it and they could be off-point.\n <\/p>\n \n Powell has said that if it weren\u2019t for Trump\u2019s trade war, the Fed would have already lowered interest rates at this point this year.\n <\/p>\n \n Instead, Trump\u2019s unprecedented tariffs have squeezed businesses and begun to erode American consumers\u2019 purchasing power. This has threatened both sides of the Fed\u2019s dual mandate \u2014 stable prices and maximum employment.\n <\/p>\n \n According to the Fed\u2019s preferred inflation gauge \u2014 the Personal Consumption Expenditures price index \u2014 inflation of goods exposed to tariffs, such as appliances and furniture, has already crept up and could continue to rise in the months ahead.\n <\/p>\n \n But several Fed officials have warmed up to the idea that tariff inflation may be short term, possibly resulting in only a one-time price adjustment.\n <\/p>\n \n San Francisco Fed President Mary Daly wrote in a recent social media post<\/a> that \u201ctariff-related price increases will be a one-off.\u201d St. Louis Fed President Alberto Musalem said as much at a September 3 event, stating that he expects \u201cthe effects of tariffs will work through the economy over the next two to three quarters and the impact on inflation will fade after that.\u201d\n <\/p>\n \n Not only does the tariff situation remain highly uncertain, despite Fed officials\u2019 higher hopes that tariff inflation may be limited, but so does the future of the labor market.\n <\/p>\n![\"Fed](\"https:\/\/www.newsbeep.com\/ca\/wp-content\/uploads\/2025\/09\/2025-07-28t100042z-823514254-rc2s1u9r2drh-rtrmadp-3-usa-fed-economy.JPG\")
<\/p>\n![\"Federal](\"https:\/\/www.newsbeep.com\/ca\/wp-content\/uploads\/2025\/09\/gettyimages-2227060719.jpg\")
<\/p>\n![\"Despite](\"https:\/\/www.newsbeep.com\/ca\/wp-content\/uploads\/2025\/09\/gettyimages-2228890535-20250909144007961.jpg\")
<\/p>\n![\"Products](\"https:\/\/www.newsbeep.com\/ca\/wp-content\/uploads\/2025\/09\/gettyimages-2220470401.jpg\")
<\/p>\n