The Fed’s got two basic things it’s supposed to do, according to Congress: keep prices stable, while maximizing employment.
With inflation above the Fed’s 2% target and Trump’s tariffs putting upward pressure on prices, the Fed’s been keeping interest rates high in “restrictive” territory.
But last week, Fed Chair Powell signaled that that stance is subtly changing, as worries grow about the job market deteriorating. The most recent jobs report showed mediocre job creation in July, while revisions showed barely any jobs added in May and June.
That really got the Fed’s attention, according to Larry Tentarelli at Blue Chip Daily Trend Report.
“It seems like their view is that the labor market is weakening, and that is a bigger near-term concern than the inflation issue,” he said.
Inflation still matters to the Fed, said Tantarelli, but “I think they’re going to be more focused on incoming labor market data, so the weekly jobless claims, we’ll get another payrolls report Sept. 5.”
That could also come in pretty weak, said Joe Brusuelas at consulting firm RSM. The labor force is shrinking as Baby Boomers retire and undocumented workers get deported — meaning, job creation could be in the 50,000-a-month range without pushing unemployment higher.
“There’s a big difference between a slower pace of hiring and an increasing pace of firings,” Brusuelas said. “We’re just not seeing the latter right now.”
But if the economy actually starts losing jobs and unemployment spikes, the Federal Reserve will be under pressure to cut interest rates more aggressively — which Brusuelas said will be hard, if tariffs also cause a resurgence in inflation.
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