Federal Reserve officials: Employment slowdown does not change the interest rate path, and the expectation of interest rate cuts is difficult to adjust for the time being
The U.S. July employment report was unexpectedly weak, raising concerns among Federal Reserve officials about the economic outlook. Atlanta Fed President Raphael Bostic stated that despite the worrying employment data, it would not change interest rate decisions. He pointed out that current inflation is still far from the Federal Reserve's target, and the job market remains relatively healthy. Cleveland Fed President Loretta Mester also believes that the unemployment rate is within a normal range, supporting the decision to keep interest rates unchanged. Manufacturing data similarly indicates economic weakness, with the July manufacturing Purchasing Managers' Index falling below the expansion threshold for the fifth consecutive month
According to the Zhitong Finance APP, the U.S. July employment report was unexpectedly weak, raising further concerns among Federal Reserve officials about the economic outlook. Atlanta Fed President Raphael Bostic stated on Friday that the latest employment data is worrisome and may suggest that the U.S. economy is weakening more broadly. In an interview, he described the employment report as "significant" and noted that the downward revision of previous data was "quite large."
The latest data released by the U.S. Department of Labor shows that non-farm payrolls increased by only 73,000 in July, far below the market expectation of 110,000; the June employment data was also significantly revised down from an initial estimate of over 200,000 to just 14,000.
Despite this, Bostic stated that the labor market "remains strong in many respects" and that he would not change the Federal Open Market Committee (FOMC) interest rate decision this week even in light of this data. He pointed out that this employment data may indicate that risks in the economy are "becoming more balanced," but he emphasized that current inflation is still far from the Fed's 2% target, whereas the deviation in the labor market is relatively small.
Regarding market expectations for more rate cuts in 2025, Bostic was cautious, stating that he is "not yet ready" to raise rate cut forecasts. He also mentioned that in the current complex economic environment, businesses may need up to 12 months to adjust their pricing strategies, saying, "I think we are in a very difficult environment right now."
Manufacturing data further exacerbated signals of economic weakness. The Institute for Supply Management reported that the manufacturing purchasing managers' index fell from 49.0 in June to 48.0 in July, marking the fifth consecutive month below the neutral line, indicating that the manufacturing sector continues to be in contraction.
Cleveland Fed President Loretta Mester also pointed out in an interview with Bloomberg that despite the disappointing employment report, the labor market remains "healthy" overall. She believes that the slowdown in non-farm employment growth partly reflects the impact of declining immigration numbers in the U.S. in recent years.
Mester further stated that the unemployment rate, as "one of the most reliable indicators we have," remains within the normal range over the past year, thus not constituting an alarm. She also supports the decision to keep interest rates unchanged this week, noting that current inflation levels are still significantly above the Fed's 2% target.
"This is an extremely complex time," Mester admitted, "and it's not surprising that there are differences among policymakers."
