On Wednesday, the Fed held rates steady, and Fed Chair Jerome Powell kept his options wide open for its next meeting in September. He promised little while ruling out nothing.
Fed officials are betting they can afford to wait until September to see whether tariffs will slow the economy, fuel inflation, or pass by with little effect.
In Wednesday’s meeting, Powell said, “We want to do that efficiently. Cutting rates too soon could force the Fed to come back later and raise them. That’s inefficient. But waiting too long could cause unnecessary damage to the labor market.”
Critics argue that the low and stable unemployment rate that Powell touted as an indicator of economic stability is hiding a gradual labor market deterioration that could accelerate quickly.
According to Neil Dutta, head of economic research at Renaissance Macro Research, “The unemployment rate being at 4.1% gives you a false sense of what’s actually going on in the job market.”
Christopher Waller, A Fed Governor on the Federal Reserve Board, dissented from the Fed’s decision to keep rates steady because he favored a rate cut this week and argued that the economy isn’t as strong as it might seem.
Finally, according to the Wall Street Journal, housing markets also show labor market weakness. Residential investment has been declining and inventories of for-sale housing are growing. This is a sign that housing markets are exhausting buyers who are willing or able to buy homes with rates above 6.5%.
