At its meeting starting on Tuesday, the US Federal Reserve is widely expected to cut interest rates for the first time this year. But the central bank must balance its dual mandate to promote maximum employment and keep prices stable, while withstanding growing pressure from Donald Trump to make a “big cut”. At its two-day gathering, the most dovish committee members are set to echo the US president’s calls for a chunky rate reduction in response to slowing job growth. Yet with inflation climbing to 2.9 per cent in August, the case for caution is stronger.
Since the Fed’s last meeting in July, the debate has tilted in rate-cutters’ favour. The central bank’s latest Beige Book reported that “most of the 12 Federal Reserve Districts reported little or no change in economic activity” over the summer. Consumer confidence slid in September. Construction and manufacturing activity has also been subdued, squeezed by high borrowing costs and Trump’s wide-ranging import duties. Resilience has come from narrow sources, including booming investment in artificial intelligence-related infrastructure.
The broad-based economic slowdown is showing up in a cooling labour market. For several months, more private-sector industries have been shedding jobs than creating them. While the jobless rate remains low, it has edged higher over the year, and could rise faster as workers struggle to find suitable roles. Job-finding expectations fell to a record low in the New York Fed’s consumer survey for August. That said, large data revisions and the administration’s clampdown on foreign workers have muddied the statistics somewhat.