"New Federal Reserve News Agency": The June non-farm payroll report may extend the Federal Reserve's wait-and-see period

Nick Timiraos, a senior Federal Reserve reporter known as the "New Federal Reserve Correspondent," believes that the previous comments from Federal Reserve officials regarding the robustness of the labor market data justify their cautious approach to interest rate decisions, and the recently released U.S. non-farm payroll report may lead them to extend this policy wait-and-see period.

Timiraos's core view is that the June employment report is unlikely to shake the Federal Reserve's wait-and-see stance on interest rates this summer. In other words, don't expect an immediate rate cut at the next meeting at the end of July.

As previously mentioned by Wall Street Watch, the Federal Reserve's "rising star" Waller and the "Trump-nominated" Vice Chair for Supervision Bowman have recently expressed support for a rate cut as early as July. Timiraos points out that most Federal Reserve officials have not put much effort into the possibility of a rate cut in July.

Why is this the case? Because the Federal Reserve's focus has undergone some subtle changes. They are no longer solely fixated on traditional employment and inflation numbers but are beginning to spend more time contemplating the impacts of certain "policy experiments," particularly how trade and immigration policies are altering the operational and hiring decisions of American businesses.

At the same time, the Federal Reserve is facing significant external pressure. President Trump’s pressure on Federal Reserve Chairman Powell and his colleagues has reached a boiling point, with Trump even publicly calling for Powell's resignation. In this context, every move the Federal Reserve makes appears particularly cautious and noteworthy.

An Employment Report Insufficient to Change the Wait-and-See Stance

The report released this Thursday shows that the U.S. added 147,000 non-farm jobs in June, exceeding Wall Street's expectations by 41,000, with the employment figures for the previous two months revised up by 16,000; however, private sector employment increased by only 74,000 in June, marking the lowest growth since October of last year; the unemployment rate in June did not rise as expected from 4.2% in May to 4.3%, but instead fell to 4.1%, significantly lower than the Federal Reserve's revised unemployment rate forecast of 4.5% for this year.

Timiraos notes that the June employment data is somewhat neutral; it neither signals an overheating economy nor shows signs of recession. The report indicates that the pace of hiring in the private sector has slowed according to business surveys, but the unemployment rate calculated from household surveys has slightly decreased.

This provides Powell with an excellent reason to remain patient. As Powell himself stated, a "robust labor market" gives the Federal Reserve more time to observe the impacts of the series of policy changes implemented this year On Tuesday, Powell stated at the central bank forum held by the European Central Bank that Federal Reserve officials are "closely monitoring the labor market." Although there is a trend of "gradual cooling," "we have not yet seen any unexpected signs of weakness."

Therefore, the lukewarm data from the June non-farm payroll report just supports the Federal Reserve's "wait-and-see" strategy of holding steady.

New "Policy Experiments": More Than Just Employment Numbers

Timiraos' article mentions a more interesting point: the Federal Reserve is assessing the consequences of a series of "policy experiments." These experiments include stricter immigration policies, escalating tariff barriers, and layoffs by the federal government and related contractors. These factors are reshaping the U.S. economy and labor market in unprecedented ways.

What does this mean? It means that the way we interpret employment reports also needs to change. In the past, when people saw a slowdown in job growth, their first reaction might have been that the economy was faltering. But Timiraos cites the logic of Federal Reserve officials explaining that the situation is different now. Due to tightened border controls, there are fewer immigrants coming to work in the U.S., and the labor supply itself is decreasing.

This raises a key question: how to determine whether the weakness is in demand or a reduction in supply? The answer lies in two key data points.

Timiraos believes that if job growth slows but the unemployment rate remains stable or even declines, it likely indicates that "the rate of decline in labor supply is faster than demand." Conversely, if job growth slows while the unemployment rate rises, that would be a real danger signal of weak demand. The current situation clearly leans more towards the former.

Many economists also believe that changes in immigration policy are the main reason for the significant fluctuations in the U.S. labor supply in recent years. They estimate that in the post-pandemic wave of immigration, the "break-even point" needed to maintain a stable unemployment rate—the minimum number of new jobs added each month—has risen from 80,000 before the pandemic to 100,000, and at one point even reached 200,000 or higher. As immigration inflows decrease, this number is returning to normal.

As Federal Reserve Governor Waller said, "If you thought 100,000 was normal five years ago, you might need to reconsider that 100,000 is normal again now."

Supreme Court Order Suggests Federal Reserve Officials Enjoy Stronger Protection Against Presidential Dismissal

When discussing the Federal Reserve's decision-making, political factors cannot be overlooked. Timiraos describes how the Trump administration exerted "extraordinarily harsh pressure" on the Federal Reserve. From calling for Powell's resignation on social media to senior advisors publicly commenting on interest rate policies, this was extremely rare as it broke the tradition of respecting the independence of the Federal Reserve.

A recent example is that on Wednesday, Bill Pulte, the head of the Federal Housing Finance Agency (FHFA) appointed by Trump, accused Powell https://wallstreetcn.com/articles/3750313 of providing deceptive testimony in the Senate regarding the Federal Reserve's headquarters renovation plan, stating, "Requesting Congress to investigate Chairman Powell's political bias and his false testimony in the Senate constitutes grounds for dismissal." Pulte has previously criticized the Federal Reserve's policies for keeping mortgage rates high. Timiraos introduced expertise explaining that mortgage rates are more closely tied to long-term Treasury yields, which are influenced by various factors, far beyond the Federal Reserve's short-term interest rate policies. Sometimes, a rate cut by the Federal Reserve may actually raise long-term rates due to increased economic confidence.

In the face of this political storm, Powell made it clear that he believes he will not be dismissed before the end of his four-year term as Fed Chair and is focused on maintaining the Fed's independence to achieve stable employment and low inflation.

Timiraos also mentioned that the U.S. Supreme Court hinted in an unrelated legal order in May that Federal Reserve officials enjoy stronger protection from presidential dismissal compared to other government appointees. This undoubtedly adds to Powell's confidence.

Possible Rate Cuts Later This Year, Especially If Summer Inflation Data Is Softer Than Expected

Timiraos provided his predictions for future trends. He believes that the Federal Reserve is likely to remain on hold at its July meeting.

On Tuesday, Powell declined to predict the decision for the July meeting at the central bank forum, not ruling out the possibility of a rate cut in July, stating, "I won't rule out any meeting, nor will I specifically put it on the agenda." Powell said that decisions "will depend on the data, and we are looking at it meeting by meeting."

Timiraos stated:

"Powell has hinted that a rate cut could occur later this year, especially if the summer inflation data is softer than expected."

From this perspective, the current Federal Reserve resembles a captain navigating a large ship into uncharted, variable weather seas, i.e., the impact zone of various policy experiments. In such times, rather than hastily changing course, a wiser choice is to temporarily steady the helm and observe the wind and currents.

In summary, Timiraos's article tells us that the Federal Reserve's summer watchfulness is not inaction but a strategically considered pause. They are striving to understand how new variables like immigration and trade are altering the traditional economic chessboard. Under immense political pressure, whether the Federal Reserve can maintain its independence and accurately interpret the increasingly complex economic landscape will directly affect the future direction of the U.S. economy