You may have had a hot summer but the nation’s labor market?
Not so much.
It’s looking rather cool.
Related: Hiring data show disturbing trend just days before crucial jobs report
So cool, in fact, some economists and market watchers are forecasting a big change later this month when the Federal Reserve votes on the benchmark Federal Funds Rate.
This move could affect interest rates from auto loans and credit cards on Main Street to stock market expectations and risks on Wall Street.
Source: Board of Governors of the Federal Reserve System
How jobs influence the Fed’s dual mandate
- The Fed’s dual mandate from Congress is to maintain price stability and low unemployment through its monetary policy actions.
- The independent central bank has held the benchmark Federal Funds Rate at 4.25%—4.50% since December 2024, mostly because it is concerned that tariffs would increase inflation.
- Fed Chair Jerome Powell recently signaled a cut could be warranted in the near future amid a “shifting balance of risks.”
- The Federal Open Market Committee votes on the funds rate Sept. 17.
Key signals for the Fed from the latest job reports
- Private-sector hiring slowed sharply in August, with just 54,000 jobs added, according to the ADP Employment Report, which also showed a slightly upwardly revised 106,000 increase in July.
- Initial unemployment benefits rose to the highest since June, increasing by 8,000 to 237,000 in the week ended Aug. 30, the Labor Department reported.
- Layoffs jumped 39% to 85,979 in August, the highest total for August since 2020, according to global outplacement firm Challenger, Gray and Christmas.
- The Job Openings and Labor Turnover Survey (JOLTS) for July showed job openings fell to the lowest in 10 months: Available positions decreased to 7.18 million from a downwardly revised 7.36 million in June.
What top economists are saying about interest rate cuts
Federal Reserve Bank of New York President John Williams, who is a voting member of the FOMC, said Sept. 4 that it will “become appropriate” to cut interest rates “over time” but didn’t note an actual timeline.
Related: Here’s how stocks react to Fed interest rate cuts
“Looking ahead, if progress on our dual mandate goals continues as in my baseline forecast, I anticipate it will become appropriate to move interest rates toward a more neutral stance over time,” Williams said in prepared remarks.
The Fed faces a “delicate” balance when it comes to employment and inflation risks, he noted.
More Federal Reserve:
- Fed official sends bold 5-word message on September rate cuts
- New inflation report may have major impact on your wallet
- Morgan Stanley makes major change to Fed interest rate cut forecast
- Can the president fire a Federal Reserve governor?
- DOJ turns up the heat to remove embattled Fed official
“The balancing here has moved some of the concerns around the employment mandate a little higher, and on the margin, on the inflation mandate, a little bit lower,” Williams told reporters after his speech.
The day before, Fed Governor Christopher Waller doubled down on his stance for a September rate cut of .25% followed by additional cuts over the next three to six months.
Waller repeated his assertion that tariff inflation appears to be transitory and less of a risk than the labor market’s increasingly cool numbers.
Waller, reported to be a top candidate to replace Powell as chair, dissented at the July FOMC meeting alongside Governor Michelle Bowman when the Fed opted to hold rates steady.
It was the first FOMC dissent of Powell’s term as chair, and in decades at the Fed.
Waller and Bowman, both Trump 1.0 appointees as is Powell, said signs of weakness in the labor market validated the need to cut the funds rate.
The widely respected CME Group FedWatch Tool says there is 97.6% probability that the Fed will cut rates by at least .25% then.
