US Federal Reserve policymakers announce rate cuts as labor market cools

Susan Collins, president of the Boston Fed, used those terms in interviews with Bloomberg News and Fox Business, while Patrick Harker, head of the Philadelphia Fed, used similar language in interviews with Reuters and CNBC in Jackson Hole, Wyoming. Neither provided any specifics about what those terms mean for the frequency of rate cuts.

Investors have been expecting the Fed to begin cutting interest rates in September for many weeks and are now turning their attention to the period after that. Bets on Fed funds futures currently assume that the Fed will cut interest rates by a total of 75 or 100 basis points by the end of the year.

Central banks should proceed gradually in easing monetary policy, Collins said, stressing that she does not see any “major warning signals” in the economy. The head of the Boston Fed said she is focused on “maintaining the healthy labor market while we continue to reduce inflation.”

“In this context, I think it is appropriate to begin easing monetary policy soon,” Collins told Bloomberg News ahead of the Kansas City Fed's annual symposium in Grand Teton National Park.

“We need to start cutting interest rates in September,” Harker told CNBC. “We need to cut them systematically.”

Harker added that he wanted more information before deciding whether a 25 or 50 basis point increase would be appropriate next month.

In contrast, the event's host, Jeffrey Schmid, president of the Kansas City Fed, said he was not yet ready to support a rate cut.

“It makes sense to me to take a closer look at some of the data that's coming in the next few weeks,” he told Bloomberg TV's Michael McKee in an interview recorded Wednesday and broadcast Thursday. “Before we act – at least before I act or recommend acting – I think we need to see a little bit more.”

Minutes of the Federal Reserve's July 30-31 meeting released Wednesday show that “several” Fed officials thought a rate cut last month was plausible, while an “overwhelming majority” believed it would be appropriate to begin easing at their next meeting on September 17-18.

Organized cooling

None of the three officials said their assessment of the economy had been materially changed by the U.S. Labor Department's preliminary revision to payroll figures for the year ending March 2024. The number of net new jobs created in the U.S. during that period is expected to be revised downward by 818,000, the Bureau of Labor Statistics said Wednesday.

“Even though that's a big number, it doesn't really change my mindset when it comes to monetary policy,” Schmid said.

Current data shows that the economy is still in good shape overall, Collins said. Inflation has fallen significantly and the data increases confidence that the economy is on track to meet the Fed's 2 percent target, she said.

And although the unemployment rate is rising – it was 4.3 percent in July – it is still at historic lows and labor force participation is high. While hiring has declined, layoffs have not increased. That paints a picture of a labor market that is cooling in an orderly manner, Collins said.

“I think recalibration is starting to become important, but I would imagine it will happen gradually,” she said, adding, “There is no one-size-fits-all path.”

Investors will be watching Fed Chairman Jerome Powell's speech on Friday for clues about how quickly policymakers intend to act.