Fed Prepares for Potential Interest Rate Cuts Amid Slowing Job Growth

Federal Reserve policymakers indicated readiness to initiate interest rate cuts at the upcoming central bank meeting, amidst a cooling labor market. They are poised for a 0.25% rate reduction, potentially larger cuts if job market conditions worsen. Inflation rates have decreased but unemployment has risen, shifting the Fed's focus to job support.

Federal Reserve policymakers on Friday signaled their readiness to implement a series of interest rate cuts at the U.S. central bank's upcoming meeting, in response to a cooling labor market that risks becoming more serious without a policy shift. Their comments suggest a likely quarter-percentage-point reduction in the policy rate, with the possibility of more significant cuts if job market conditions deteriorate further.

Since July 2023, policymakers have maintained the Fed's benchmark rate within the 5.25% to 5.50% range, following an aggressive rate-hiking campaign initiated 18 months ago to counter a surge in inflation. While inflation has significantly declined from its mid-2022 peak of 7%, the unemployment rate has increased to 4.2%, with a noticeable slowdown in monthly job growth.

U.S. central bankers are now prioritizing job support over strict inflation control. New York Fed President John Williams justified the shift at the Council on Foreign Relations, advocating for reduced restrictiveness in the monetary policy. Fed Governor Christopher Waller and Chicago Fed President Austan Goolsbee echoed this sentiment, emphasizing data-driven policy calibration. Analysts predict a 25-basis-point cut at the September meeting, potentially followed by larger cuts if labor market trends persist.

(With inputs from agencies.)