Core Data at a Glance

  • Data released by the U.S. Bureau of Labor Statistics (BLS) on Wednesday showed that job openings fell to 7.18 million in July from 7.36 million in June, the lowest level since September 2024.
  • Layoffs increased by 12,000 during the same period, reaching 1.8 million, a 10-month high.
  • St. Louis Federal Reserve Bank President Alberto Musalem said on Wednesday: "Recent data have further deepened my perception of downside risks to the labor market. These risks include a rising share of long-term unemployed, higher unemployment rates among demographic groups more sensitive to the economic cycle, and a significant downward revision to employment growth estimates."

Policy Uncertainty Dampens Business Expansion

Policymakers, including Federal Reserve Chair Jerome Powell, have held borrowing costs steady for five consecutive meetings this year. They have pointed out that adjustments in the Trump administration's fiscal, regulatory, trade, and immigration policies have made economic forecasts more complex.

Musalem said businesses face the same murky outlook. "Throughout this year, businesses have repeatedly said that uncertainty over the effects of tariffs and other economic policies has made planning difficult and made them hesitant to increase hiring."

Market Expectations for a September Rate Cut Rise

The softening labor market, along with Powell's remarks last month opening the door to potential monetary policy easing, has led interest rate futures traders to increase bets on a rate cut at the Fed's September 16-17 meeting. According to the CME FedWatch tool, traders on Wednesday priced in a 95% probability of a rate cut at the next policy meeting, up from 80% on August 1. The Fed has kept its benchmark rate in the 4.25% to 4.5% range this year.

Musalem: Labor Market to Cool Gradually

"Looking ahead, I expect the labor market to cool gradually and remain near full employment, but risks are tilted to the downside." Musalem noted that the pace of job creation this year has slowed compared to 2024.

Like other policymakers, Musalem expects inflationary pressures from tariffs to be temporary, with price pressures potentially rising over the next two to three quarters. He said that in the coming months, stable long-term inflation expectations and below-trend economic growth could restrain price pressures, and he predicted inflation would resume its decline toward the central bank's 2% target in the second half of next year.

"However, uncertainty is considerable, and I think there is a reasonable possibility that above-target inflation could be more persistent," he said. "Indirect effects of tariffs on non-imported goods and services, or second-round price increases triggered by tariffs, could cause the adjustment process to take longer."

Musalem also mentioned: "Some businesses have told me that during tariff rate changes, they have been absorbing higher costs to avoid frequent price adjustments, but they expect to eventually raise prices."

Fed Faces Balancing Act of Dual Mandate

Policymakers at this month's meeting must focus on balancing the congressionally mandated dual mandate—maintaining price stability and ensuring maximum employment. In recent months, both goals have shown deviations: inflation has climbed to near 3%, while hiring activity has declined.

Minneapolis Fed President Neel Kashkari said on Wednesday: "Inflation is still too high, but at the same time, the labor market is showing some signs of cooling, so we are in a tricky spot right now." He added: "Our single tool can both push down inflation and the labor market, and push up inflation and the labor market. So we are in a sensitive zone now, and we have to be very careful not to overdo it in either direction."