Introduction to the US Labour Market
The US labour market is experiencing a slowdown, with disappointing employment data released on September 5. This has validated fears that the labour market may be on the brink of a downturn, leading to expectations of interest rate cuts by the US Federal Reserve. Investors are now fully pricing in a quarter-point rate cut at the Fed’s September 16-17 policy gathering, with some anticipating a total of three rate cuts this year.
The Reaction to the Jobs Report
The reaction came after the Bureau of Labor Statistics reported that employers added 22,000 jobs in August, and the unemployment rate rose to 4.3%. These figures, including revisions that showed payrolls were negative in June for the first time since December 2020, have locked down expectations that officials will need to intervene this month to support the labour market. Economists at Barclays now see three rate cuts this year, one at each of the Fed’s remaining meetings, compared to the two reductions they previously expected.
The Fed’s Upcoming Meetings
After this month, Fed officials will meet twice more in 2025, on October 28-29 and December 9-10. Even prior to the latest jobs report, a substantial slowdown in payroll growth over the summer had prompted comments from Fed chair Jerome Powell and other policymakers that the balance of risks was shifting away from inflation and towards unemployment. Powell hinted at a coming rate cut in an August 22 speech in Jackson Hole, Wyoming.
Conflicting Views Among Policymakers
Some policymakers, including Cleveland Fed president Beth Hammack and Kansas City’s Jeff Schmid, have expressed concerns about the risk that tariffs and other policies could reignite persistent price pressures. Chicago Fed president Austan Goolsbee said he’s still undecided on what action he will support at this month’s meeting, adding he would like to see the inflation data coming next week before he decides. The divergence of the Fed’s two mandates, with the labour market weakening while inflation remains above its 2% target, is a dreaded situation for central bankers.
The Impact of the Fed’s Mandates
In June, the last time Fed officials released economic projections, they forecast climbing unemployment and inflation around 3%. At the time, they signalled that would warrant two rate cuts this year, based on the median projection of 19 policymakers. What’s played out since then, nearly exactly what they forecast save for somewhat stronger growth, argues for keeping to that same projected path for policy. However, the Fed has also changed since June, with a new vacancy on the board and a fast-tracked confirmation process for a Trump-appointed replacement, which could lead to more support for a faster pace of rate cuts.
Conclusion
In conclusion, the US labour market is experiencing a slowdown, with disappointing employment data leading to expectations of interest rate cuts by the US Federal Reserve. While some policymakers are pushing for a half-point cut, others are more cautious, citing concerns about inflation. The Fed’s upcoming meetings will be crucial in determining the direction of monetary policy, and the outcome will have significant implications for the US economy. As the labour market continues to weaken, it remains to be seen how the Fed will balance its dual mandates of maximum employment and price stability.
