🔥 Land A High Paying Web3 Job In 90 Days LEARN MORE

Federal Reserve uses labor market to decide on rate cuts

554793
Federal Reserve Chair Jerome Powell

Contents

Share link:

In this post:

  • Traders are hoping the Federal Reserve will cut interest rates in September, despite mixed inflation reports.
  • The Fed is trying to control inflation and maintain employment at the same time, as with recent data showing a cooling labor market.
  • Powell hinted that the next policy move is more likely to be a rate cut, but decisions will be made based on ongoing data.

Traders had a brief moment of excitement after Thursday’s Consumer Price Index (CPI) report, which showed that prices cooled more than expected in June. This triggered hopes that the Federal Reserve might still cut interest rates this year.

Even though the less popular Producer Price Index (PPI) on Friday was hotter than anticipated, traders remained hopeful. The chances for a rate cut in September are currently at 93.8%.

Federal Reserve uses labor market to decide on rate cuts
Source: CME

The Fed has two main goals: to keep prices stable and to promote maximum employment. A weakening labor market might force the Fed to start easing monetary policy before inflation hits its 2% target. In June, inflation rose at a 3% year-over-year pace.

The U.S. unemployment rate has been climbing for three consecutive months, reaching 4.1% in June, up from 3.8% in March. Fed Chair Jerome Powell, speaking on Capitol Hill, acknowledged the labor market slowdown, stating that it’s no longer “a source of broad inflationary pressures for the economy.” 

Olu Sonola from Fitch Ratings commented: 

“The Fed will be worried that the negative trend may be a turning point for additional weakness in the labor market down the road.” 

Powell also noted that the risk balance between the unemployment rate and inflation is now two-sided, with the labor market back in balance. This gives the Fed a reason to start cutting rates sooner, as inflation seems to be moving toward the 2% target.

See also  Crypto user wins $47,000 prize in Freysa AI challenge by outsmarting the bot

Powell mentioned that data showed “modest further progress,” but emphasized that more positive data would reinforce their confidence that inflation is moving sustainably towards the target.

Federal Reserve uses labor market to decide on rate cuts
Jerome Powell giving his testimony to the Senate: Credits: Bloomberg

The Fed Chair added that labor market conditions have cooled while still being strong. However, lowering rates too early could ruin the plan to control inflation. On the other hand, keeping rates high for too long could unnecessarily increase unemployment. 

Powell believes that “elevated inflation is not the only risk we face,” pointing out concerns that maintaining high borrowing costs for too long could “unduly” harm the economy.

He stated that policy decisions would be made on a “meeting by meeting” basis, although he hinted that the Fed’s next decision could be to cut rates, not increase them.

A Step-By-Step System To Launching Your Web3 Career and Landing High-Paying Crypto Jobs in 90 Days.

Share link:

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

Most read

Loading Most Read articles...

Stay on top of crypto news, get daily updates in your inbox

Editor's choice

Loading Editor's Choice articles...
Cryptopolitan
Subscribe to CryptoPolitan