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Author: Bao Yilong, Wall Street News
Three Fed officials expressed new concerns about the latest signs of weakness in the U.S. labor market, and their remarks significantly strengthened market expectations for the Fed’s rate cut as early as September.
On Wednesday, San Francisco Fed Chairman Daley made it clear that policy adjustments may be needed in the “next months” to prevent further deterioration of the job market.
Earlier, Fed Director Cook and Minneapolis Fed Chairman Kashkali spoke out, saying that weak employment data are shaking the Fed’s internal policy balance.
These statements are a direct response to the non-farm employment report released last week.The report shows that U.S. employment growth in July was far inferior to expectations, and the data in the previous two months was significantly revised downward, and the unemployment rate also rose.Federal Reserve Director Cook even described the data correction as a typical feature of the economy’s “turning point”, further aggravated the market’s speculation on interest rate cuts.
Investor expectations for the Fed to initiate a rate cut at its September meeting heated up quickly after comments from the officials.Earlier, the FOMC decided to keep interest rates at current levels at its current level at the end of July, and the latest dovish remarks herald a significant shift in policy stance for the next meeting.
Dove signal releases intensively
The statements made by three Fed officials on Wednesday provided the market with the clearest signal of policy turnover to date.
San Francisco Fed Chairman Daley said in a speech prepared for an event in Alaska:
The labor market has shown a weak trend and I think any further employment slowdown will be worrying.
She added:
All this means that we will likely need to adjust our policies in the coming months.
Meanwhile, Minneapolis Fed Chairman Kashkali expressed the same concerns in an interview with the media, noting that the economy is slowing down.Kashkali said:
In the short term, a rate cut may be appropriate.
He also reiterated that the Fed is expected to cut interest rates twice by the end of 2025.
Fed director Cook interprets deeper meaning from the data itself.She pointed out:
The significant downward revision of the data in the July employment report on the previous few months is to some extent a typical feature of the turning point in the economy.
This statement implies that decision-makers have begun to prepare for potential economic inflection points.
The trade-off between policy shift and inflation risk
Despite the growing clarity in the signal of interest rate cuts, officials’ speeches also revealed that the Fed is still cautiously weighing its dual mission: controlling inflation and achieving full employment.
Daly said the rate adjustment was to “recalibrate” the policy to better match the risks of the two major goals of inflation and unemployment, which she believes are currently “broadly balanced.”
Even so, Daly stressed that the Fed still has more work to do to cool inflation to its 2% target.
She also mentioned that tariffs will push up prices in the short term, but the impact may not be long enough to require a policy response from the central bank.
Earlier this week, Daly said that it might be appropriate to cut interest rates twice this year, but there is also the possibility of a rate cut of more than two, leaving room for a greater easing policy.
