Jobs slowdown in the United States is real as indicated by the latest official data, which will definitely influence the Federal Reserve decision on interest rate, when the Fed meets on September 16 and 17.

Federal Reserve officials, already expected to cut interest rates this week, may also be closer to settling a months-long debate over the risks of stagflation after recent data showed longstanding weakness in hiring and easing inflation concerns.

The shift in tone began this summer, led by dissents in July from two Fed governors who wanted to cut rates at that time based on risks to the job market, and continuing as other officials began downplaying inflation and focusing more on an economy that was slowing and at risk of shedding jobs.

As the US central bank’s September 16-17 meeting nears, latest data shows the unemployment rate rose in August to 4.3% and the economy actually lost jobs in June following a revision.

“Had that data been available in the initial June estimates, it could have influenced the Fed’s decision on July 30 to hold its benchmark interest rate steady in the 4.25-4.50% range, where it has been since December,” according to Reuters.

In addition, a benchmark revision of employment last week indicated nearly a million fewer jobs were added in the year through March than originally reported.

Consumer prices in August did rise faster than in the prior month, but initial jobless benefits claims jumped in the latest week, in another sign of labour market cooling.

The situation resembles last summer when slowed hiring and downward revisions to prior estimates prompted a half-percentage-point rate cut at the Fed’s meeting that September.

While market analysts, including some 105 of 107 economists in a recent Reuters poll, expect only a quarter-percentage-point cut next week, the latest data could lead officials to project a quicker and steadier drop in rates as they move from guarding against inflation to defending the job market.

“The Fed should cut 50 basis points next week... labour market conditions are cooling more rapidly than they were to start the year. Underemployment has been rising more quickly than the... unemployment rate. Tariff-related pass-through has not been as large as anticipated. Inflation expectations look benign,” noted Neil Dutta, head of economics at Renaissance Macro Research.

But Dutta added that he expected the central bank’s policy-setting Federal Open Market Committee to compromise on a 25-basis-point cut “with a stronger commitment to backstop the labour market.”

That commitment may be seen in policymakers’ updated economic projections for inflation, unemployment and the Fed’s policy rate through the end of this year and into 2028.

Those quarterly projections, which will be released with the latest policy statement on Wednesday, are an important mark-to-market exercise at a time when President Donald Trump is demanding rate cuts and taking steps to gain influence over the US central bank, including attempting to fire Fed Governor Lisa Cook.

The last quarterly projections in June showed Fed officials anticipated two quarter-percentage-point rate cuts this year, but seven of the 19 anticipated no moves as they mulled how Trump’s tariffs might complicate efforts to return inflation to the central bank’s 2% target.

Analysts say it is very likely the Federal Reserve will take into account the weaker jobs-creation and labour market data in its upcoming decisions.

When the labour market weakens, it obviously reduces pressure on inflation. This is because wage and price pressures are likely to
ease if demand for workers falls.

Analysts see this as a clear signal of economic growth cooling, relevant for deciding monetary policy easing – either to cut interest rates or keep policy tighter!