The Federal Reserve’s current priority is on combating inflation. At the same time, you can’t blame businesses for feeling optimistic about a strong year ahead. Other officials have indicated recently that the preponderance of evidence suggests that monetary policy is not overly restrictive. This paves the way for potential changes to interest rates this fall. A quarter-point rate cut remains on the table. The latter could only happen if real time economic data—most importantly the jobs report on Friday—makes it seem warranted.
In a recent discussion, Federal Reserve officials noted that businesses across various sectors anticipate a robust performance for the remainder of the year. This overall positivity hints at the resilience found throughout the economy, though inflation still lurks over the economic landscape, driving up prices for consumers and businesses. The point isn’t whether the Fed is really committed to price stability. It is dedicated to accomplishing its mission of fostering the conditions for maximal employment and stable prices.
Today’s macroeconomic indicators do not point to a labor market that is short of full employment. With hiring and labor supply dynamics starting to cool, the Fed has this area on its watch list. The moves are being watched intensely by the central bank, as they may dictate the path of its policy actions in the months ahead.
The opportunity for that first cut to come in September depends largely on the upcoming release of pivotal economic data. The Federal Reserve is watching the jobs report very closely. This new report will shed important light on hiring patterns nationwide and the pace of wage growth across the country. If the data were to show a relatively healthy labor market, that would make the case for monetary policy support more convincing. Worse-than-expected numbers would make Fed officials more leery of acting.
Further, the long-term impacts of tariffs on consumer prices have become an acute concern. As we’ve written previously, experts say that the impacts of tariffs will not go away overnight. It can take months for them to even fully work through the economy. This uncertainty just makes the Fed’s decision to raise or lower rates much more difficult. They’ll need to tread a fine line between encouraging continued recovery while reigning in inflation.