In September, the US job market suffered a major blow. This net loss of 32,000 jobs was helped along by lingering uncertainties stemming from the government shutdown. Even worse, the suddenness of the crisis left central bankers “flying blind.” In reaction, the Federal Reserve lowered its key lending rate by 0.25 percentage points, bringing its target range to 3.75% – 4%. An ongoing high 3% year-over-year job growth rate made this decision easy. Even though that’s still a very good number, it fell shy of economists’ expectations.
The Federal Reserve’s latest move highlights a growing concern about the job market’s stability. The second consecutive monthly loss of jobs in September was a painful outcome for policymakers who have been understandably obsessing over the employment data. The recent government shutdown has made things even more difficult. It has pushed back the official public release of the monthly jobs report, putting central bankers at risk of missing essential data while making decisions.
Even with these factors, inflation came in tamer than predicted for September. Tariff-induced inflation was a major panic earlier this year. Suddenly this concern grew, as President Donald Trump did just that when he unilaterally imposed damaging tariffs on multiple major trading partners. Beyond the cost to taxpayer dollars, these tariffs failed to protect American industries and seemed likely to further increase consumer prices.
According to an economist at Bank of America, the continued uncertainty surrounding tariffs adds to the complexity of our economic environment. He further stressed that this unpredictability extends to inflation as well. While inflation is still a concern, monetary policymakers seem to be increasingly concerned about downside risks to employment mandate.
President Trump is always telling Federal Reserve Chairman Jerome Powell to cut interest rates. He thinks this will be an enormous engine of economic growth. The only way to ensure that is for Trump’s term to end in 2024. At the same time, Powell’s term ends next May, leading to uncertainty about future leadership of the Federal Reserve. Just last week, Trump suggested he could have a replacement for Powell in place by year’s end. This assertion has driven further speculation in an already fragile economic landscape.
Naturally, investors are reacting to all of these developments with optimism. They’ve priced in more than an 80% likelihood of a 4th interest rate cut by December. This sentiment underscores a collective anticipation that the Federal Reserve may take additional steps to support the economy amidst ongoing uncertainties.