"Fed Speaker": Slowing labor market will test the Fed's intransigent interest rate policy

On August 1, Nick Timiraos, the "Federal Reserve's mouthpiece", said that the slowdown in employment over the past three months may open the door for Federal Reserve officials to consider cutting interest rates at their next meeting in September. At the very least, it highlights the difficult balance they face as the economy slows and inflationary pressures rise. Fed officials have been comfortable keeping interest rates on hold this year because the labor market has previously shown solid job growth. But the sharp downward revisions to the employment data in May and June have changed that. Fed officials have previously said they have reduced their focus on overall employment growth because it has been accompanied by a slowdown in the growth of the size of the labor force. When the labor supply decreases, the unemployment rate may remain stable or decline even if job growth decelerates. But Federal Reserve Chairperson Jerome Powell this week noted that stabilising unemployment could mask underlying weakness - an inherently fragile balance when fewer job seekers coincide with fewer job openings. He referred to "downside risks" to the labour market six times in his press conference, suggesting that actual weakness could justify policy easing.