Job Market Slows, Fed at a Crossroad: What’s Next for the Economy?
The latest jobs report, released last Friday by the Labor Department, presents a mixed picture of the U.S. economy.
According to the report:
The U.S. economy added 142,000 jobs in August, below expectations of 161,000 jobs.
June’s job growth was adjusted down by 61,000 to a total of 118,00 and July’s numbers were lowered by 25,000, bringing the total to 89,000 jobs.
Combined, these monthly numbers suggest a steady weakening jobs market which can be seen in the three-month moving average of monthly job gains (see red box in the chart below):
Growing Importance of Unemployment Data and Fed Policy
At their most recent meeting, the Federal Reserve signaled a shift in its policy focus. After years of prioritizing inflation control, the Fed is now focusing on the labor market. In light of the latest jobs report, the Fed expects to proceed with a modest rate cut of a quarter percent in September. With no further meetings scheduled until after the election, the possibility of additional cuts until the election seems unlikely.
What’s Next?
The Federal Reserve’s future rate decisions are becoming increasingly linked to unemployment data. If unemployment numbers continue to weaken, they could be caught in a "no-win" situation:
If the Fed acts too slowly, the probability of a recession increases resulting in potential market instability.
However, if the Fed acts too aggressively, this has historically coincided with recessionary fears which may or may not be a reality. Unfortunately, history has shown us this can still create market volatility even if a recession is averted.
The coming months will be critical for both the economy and the Fed’s ability to manage these competing pressures effectively.
Have questions or want to speak with our team directly? Contact us.
Robert Amato, CFP®, CIMA®
Principal
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