Given the Fed's comfort, the labor market has been stable for several months and it may lower interest rates until it becomes clearer how President Trump's policies will affect the economy. New data released on Friday strengthens this patient approach.
It is widely believed that central bank officials will keep interest rates stable when the next decision is announced on May 7. The Fed has been reluctant to make additional cuts since January after lowering interest rates by a percentage point last year. This puts the interest rate range from 4.25% to 4.5%.
So far, officials have little urgency to lower interest rates, as the economy has maintained a solid position so far. Mr. Trump's attempt to reset global trade relations through high tariffs is now possible.
Although the president decided in April to temporarily halt the stricter taxation that took effect on almost all the country's trading partners, businesses are still working to address the uncertainty. Many have put aside big investments and slowed down hiring slowdowns, and some have raised prices. The survey shows that consumers’ perceptions of the outlook have also become more frustrated, raising concerns that this pessimism will eventually translate into spending cuts.
There are concerns that consumers will be so aggressively reduced that businesses will be forced to fire workers, thereby worsening the slowdown. Jerome H. Powell, Chairman of the Central Bank,
This combination has the potential to put the Fed in trouble and further in Mr. Trump's cross hair. The president has stepped up the attack on Mr. Powell in recent weeks, who put on the Fed chair to lower interest rates. On Friday, he wrote again in a social media article: “Without inflation, the Fed should lower its interest rates!!!”
Central banks are responsible for promoting low and stable inflation and a healthy labor market. Officials now have to phase out what they will do if their economic goals are tense with each other.
Officials’ news is welcome, the latest jobs report shows that it shows a more than expected monthly wage growth and a steady unemployment rate. This was confirmed after inflation data earlier this week, and even in March, price pressure was a bit exhausted, even if it still surpassed the Fed's 2% target.
Officials are now debating whether the upcoming consumer price increase is just a temporary adjustment that gradually fades over time, or whether it will lead to sustained higher inflation.
After the pandemic, the Fed was just after struggling with inflation, stressing the importance of ensuring tariff-related price pressures do not turn bigger problems into bigger problems. Last month, Mr Powell said that inclusion of inflation is crucial to promoting a healthy labor market.
“Without price stability, we will not be able to achieve a long-term strong labor market situation that benefits all Americans,” he said at an event at the Chicago Economic Club.
This emphasis shows that there is a high standard for the Fed to lower interest rates again. Officials will need to see clear evidence that the economy is weakening before action can take time.
Gov. Christopher J. Waller said in a recent interview that he does not want tariffs to affect the economy in an important way before July, indicating no recent cuts.
Preston Mui, a senior economist at the Research and Advocacy Group, hired the United States, and he expects the labor market to gradually slow down rather than collapse in the next few months.
“When you lay off employees, layoffs are in layoffs,” he said. It will depend on Mr. Trump's behavior on tariffs. If the president reverses the courses at the 90-day deadline that was self-imposed in early July, the labor market may avoid a more painful blow. If tariffs are retained, or uncertainty surrounding trade policy persists, damage may begin to increase.
After Friday’s report, traders in the federal funds futures market have expanded their expectations for a central bank to lower interest rates this year. They see a much lower chance of decreasing in June, but continue to forecast a quarter of July. In the year, they saw the Fed cut at least three times.
