Federal Reserve officials signaled on Wednesday that ongoing labor market concerns continue to shape their outlook for future rate cuts.
Fed Governor Christopher Waller told CNBC that he believes the central bank should cut rates at its upcoming September 16–17 meeting. Waller, who dissented in July in favor of easing, warned that when the labor market weakens, the downturn can happen quickly. He emphasized that a rate cut would not lock the Fed into a fixed path, but he expects multiple cuts could follow over the next three to six months.
Separately, Atlanta Fed President Raphael Bostic also reiterated his view that a rate cut is likely this year. He noted the labor market is slowing enough to justify easing by around 25 basis points before the end of 2025.
Investors already expect the Fed to trim rates by a quarter percentage point this month, taking the federal funds rate from its current 4.25%–4.5% range. Confidence in this move grew after Fed Chair Jerome Powell said at Jackson Hole that restrictive policy, combined with shifting risks, may require adjustments.
Balancing jobs and inflation
Fed officials are weighing their dual mandate: keeping inflation low while supporting employment. Concerns remain that President Donald Trump’s sharp increase in tariffs could raise prices further. A Yale Budget Lab report estimated that 61–80% of the 2025 tariffs are being passed through to consumer goods, raising inflation risks.
Still, many Fed policymakers see inflation pressures from tariffs as temporary. Both Waller and St. Louis Fed President Alberto Musalem argued that once the effects fade, inflation should ease back toward the 2% target.
Musalem told the Peterson Institute for International Economics that he has slightly raised his assessment of downside labor market risks while lowering his concern about persistent inflation. He expects some moderate job market deterioration but sees inflation stabilizing by late 2026.
Jobs data supports concerns
Fresh government figures released Wednesday added weight to Fed officials’ concerns. The JOLTs report showed job openings fell by 176,000 to 7.181 million in July, weaker than expected. Hiring also slowed, pointing to a cooling labor market.
While Musalem gave little forward guidance on rates, he said current policy is “in the right place” given today’s economic backdrop.
