Bank and White House tussle: Fed prepares to cut interest rates

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US Fed hints at flexible monetary policy, seeks interest rate cuts: A senior Federal Reserve official suggested that the tightening of US labor market indicators, coupled with the absence of sustained inflationary pressures, paves the way for the cost of borrowing to ease soon.

Fed Statements

“Waiting too long is futile,” says San Francisco Fed President The September meeting is a pivotal point for revising interest rates in the benchmark scenario: Two consecutive cuts of 0.25% each

Supportive economic indicators:

Flexible political scenarios:

Rate cuts may not be tied to specific dates (December/September) Any further deterioration in employment will prompt faster intervention Upcoming data will determine the pace of change

Critical warning:
Delayed response may weaken the effectiveness of monetary policy The balance between price containment and employment stimulus is becoming more urgent

Deteriorating employment indicators portend a review of monetary policy
U.S. Labor Department data revealed a sharp slowdown in the labor market in July:

Only 73K new jobs (6-month low) A downward revision to the previous two months’ data of 33K. Unemployment rate: Increased to 4.2% (+0.1 points) Absolute numbers “inevitably do not reflect a serious deterioration” amid economic volatility Relative indicators show a continued decline through 2023

Key warnings from Fed officials: Multiple evidence that the market is losing its previous strength Any further pullback would be a “red flag The relative comfort of the July decision does not mean it will be repeated in future meetings.”

Fed warning: Tariff inflation could surprise markets The Fed’s top official emphasized that there are no signs of tariffs’ inflationary effects spilling over at the moment, but warned: Waiting for hard evidence could take 6-12 months and any delay in action would make monetary policy “too late.

The Fed is entering a delicate balancing act between: Restraining prices Maintaining full employment Current policy is “no longer fit for purpose” in Daly’s assessment.

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