The Federal Reserve is monitoring inflation closely, with the current rate about 3% above the 2% target. Tariffs are contributing to this increase, but their impact is expected to fade in six to nine months. However, some experts warn that pressures could persist.
The Fed has a dual mandate: keeping inflation around its target and protecting employment. Currently, the labor market appears stable, with low unemployment at 4.2%. Despite this, there are signs of weakening, including low payroll growth and large revisions downward.
Demand for labor has decreased, and supply has also fallen due to lower immigration flows. This could lead to a nonfarm payroll below 50,000 jobs. While some companies have reported no plans for layoffs, the impact of slower growth on employment is still uncertain.
The Fed’s Chairman is taking a cautious approach, citing risks that inflation could be more persistent and unemployment may increase. However, their base case scenario suggests otherwise. The Fed will continue to monitor the situation closely before making any policy decisions.
It’s worth noting that a 50-basis-point cut in interest rates is not supported by current economic data. More data would be helpful before deciding on policy. For now, the Fed is following a meeting-by-meeting approach, trying to balance inflation and employment risks.
Source: https://investinglive.com/centralbank/fed-pres-musalem-inflation-is-running-about-3-above-the-2-targettariffs-are-impacting-20250814