Fed Officials Split on Inflation vs. Jobs Ahead of September Decision

Federal Reserve policymakers are wrestling with a critical question ahead of their September 16–17 policy meeting: Is stubborn inflation or slowing job growth the bigger threat to the U.S. economy right now?

With the annual Jackson Hole conference in Wyoming next week, officials remain sharply divided. Some, alarmed by weak hiring since April, are leaning toward cutting the benchmark interest rate from its current 4.3% to stimulate growth. Others warn that inflationary pressures—especially in key service sectors—are still too high to justify easing monetary policy.

Jobs Weakness vs. Price Pressures

July’s jobs report showed sluggish hiring, with average gains over the past three months falling to just 35,000—down from 123,000 a year ago. That slowdown pushed futures traders to place a 93% chance on a September rate cut, according to CME FedWatch data.

Michelle Bowman, a Fed governor, argues the focus should now shift to protecting employment, saying inflation is “on a sustained trajectory toward 2%.” However, Chicago Fed President Austan Goolsbee remains concerned about price increases in services like dental care and airfare, which are unaffected by tariffs.

Tariff Impact Divides Officials

Officials also disagree on how new tariffs will shape inflation. San Francisco Fed President Mary Daly expects only a temporary price bump, while Atlanta Fed President Raphael Bostic warns of structural shifts if production relocates to higher-cost regions.

This uncertainty, combined with still-low unemployment at 4.2%, has some policymakers favoring a cautious approach.

September Rate Cut Still Likely—But Not Guaranteed

Thursday’s wholesale price report, showing a sharp rise in goods and services prices before reaching consumers, dampened speculation about a half-point cut in September. St. Louis Fed President Alberto Musalem called such a move “unsupported” by current conditions.

Economist Tim Duy warns that if inflation forecasts are revised higher next month, cutting rates could prove politically and economically difficult.

With one more jobs report and one more inflation reading due before the September meeting, the Fed’s next move remains a close call—and markets will be watching Jerome Powell’s Jackson Hole speech for clues.

SOURCE: AP News