The Federal Reserve may be preparing to pull the trigger on interest rate cuts sooner than expected, as fresh labor market data raises red flags about the economy’s momentum.
Following a weaker-than-anticipated July jobs report — and major downward revisions to May and June job growth — several top Fed officials are signaling that the central bank could act as early as its September 17 meeting. Minneapolis Fed President Neel Kashkari told CNBC that “wage growth is coming down… consumer spending is cooling… all of that suggests the real underlying economy is slowing,” adding that rate adjustments may be necessary in the “near term.”
San Francisco Fed President Mary Daly echoed those concerns, warning that the labor market can unravel quickly once it falters. “We know that once the labor market stumbles, it tends to fall quickly and hard,” she said, calling for policy changes “in the coming months” if needed.
While Fed officials have kept interest rates unchanged for five consecutive meetings this year, the latest data is prompting some to rethink their “wait-and-see” approach. The July report, released by the Bureau of Labor Statistics, not only showed weaker hiring but also revealed sharp downward revisions to previous months — a pattern Fed Governor Lisa Cook described as “typical of turning points” in the economy.
Still, not everyone is ready to pivot. Atlanta Fed President Rafael Bostic said he remains in favor of just one rate cut this year, noting the economy’s “churn and turbulence” but cautioning against moving too quickly.
Inflation, still above the Fed’s 2% target, remains a complicating factor. However, with growth slowing and unemployment risks mounting, the central bank appears increasingly ready to act, potentially setting the stage for the first rate cut of 2025.
