USSeveral Federal Reserve officials who spoke on Wednesday said labor market worries continue to animate their belief that rate cuts still lie ahead for the central bank.
“I’ve been clear that I think we should be cutting at the next meeting,” Federal Reserve Governor Christopher Waller said in an interview with CNBC, reiterating the view he has held for some time and led him to dissent at the late July Fed meeting in favor of an easing. “You want to get ahead of having the labor market go down because usually when the labor market turns bad, it turns bad fast,” he said.
He added that a rate cut at the September 16-17 Federal Open Market Committee meeting would not put monetary policy on a pre-set course of lowering borrowing costs and data will drive what the central bank does. But, “I would say over the next three to six months, we could see multiple cuts coming in.”
Atlanta Fed President Raphael Bostic also reiterated his view that a rate cut is in the cards although he did not say how soon it might happen. He wrote in an essay that “today, I judge policy to be marginally restrictive.” He added, “while price stability remains the primary concern, the labor market is slowing enough that some easing in policy—probably on the order of 25 basis points—will be appropriate over the remainder of this year.”
And in a hometown speech, Minneapolis Fed leader Neel Kashkari said with the neutral fed funds rate around 3%, “that suggests that interest rates have some room to come down gently over the next couple of years.” The official also declined to say when he believes the Fed should cut rates given the uncertainties created by trade policy.
The Fed’s meeting later this month is viewed by investors as a lock for a quarter percentage point cut in what is now a 4.25% to 4.5% federal funds interest rate target range.
The market’s confidence is rooted in comments made by Fed Chair Jerome Powell late last month at the Kansas City Fed’s Jackson Hole, Wyoming research conference when he said, “with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.”
In weighing a rate cut, Fed officials are trying to balance their legally mandated mission of keeping inflation low and the job market as strong as it can be without creating price pressures.
Many Fed officials, as well as many private sector economists, are concerned inflation is too high and likely to get higher in response to President Donald Trump’s huge increase in import taxes. Kashkari noted because of these factors, “we’re getting into a tricky position” for Fed policy.
The Budget Lab at Yale analysis group in a new report cited mounting evidence that tariffs are boosting goods prices, estimating that “61-80% of the new 2025 tariffs were passed through to consumer core goods prices, roughly in the middle of prior studies around consumer price pass-through.”
Meanwhile, the Fed’s Beige Book anecdotal survey of conditions across the US found tariff-related price increases were pervasive.
“While some firms reported passing through their entire cost increases to customers, some firms in nearly all districts described at least some hesitancy in raising prices, citing customer price sensitivity, lack of pricing power, and fear of losing business,” the Fed report said.
JOB WORRIES
At the same time, a wide range of data indicates the labor market is weakening, and that is driving some at the Fed to focus more on the jobs side of their mandate.
St. Louis Fed President Alberto Musalem, in an appearance before the Peterson Institute for International Economics, said “I’ve been revising my assessment of downside risks for the labor markets slightly higher as I’ve seen some deterioration in some of the underlying full employment numbers, and I’ve been revising my assessment of the risk of persistent above-target inflation slightly lower, in part because the pass-through so far of tariffs on inflation has been low.”
The officials’ worry about the labor market was to some degree backed up by a government report released on Wednesday that showed moderate hiring and a declining number of job openings. The Job Openings and Labor Turnover Survey, or JOLTS report, showed openings dropped 176,000 to 7.181 million by the last day of July, a lower rate than economists had expected.
Musalem, however, offered few clues about the outlook for rates beyond saying monetary policy is currently in the right place given current economic performance. He also said in his speech he expects some moderate deterioration in the job market, with inflation pressures undergoing a short-run bump from tariffs before easing back to 2% in the latter part of 2026.
Waller, and to some extent Musalem, see tariffs as largely a temporary factor that will pass through the economy and, once done, will allow price pressures to ease back to the target. — Reuters
