The Fed is expected to cut rates: here’s how it might impact jobs
The Federal Reserve is expected to cut interest rates this week. Rates are currently around 4.25% to 5.5%, but the Federal Reserve is expected to lower the interest rate by a quarter point to 4.00%–4.25%, according to a Reuters poll of 107 economists.
Over the past year, the Federal Reserve Bank has avoided cutting interest rates. Higher rates help curb inflation by making it more expensive to borrow money. In turn, this incentivizes people not to spend, which slows down price increases.
Trump has been pressuring Federal Reserve Chair Jerome Powell to cut rates, while asserting that inflation is a nonissue. (According to a new Consumer Price Index (CPI) report, as of August consumer prices increased by 2.9% since last year: higher than the Fed’s goal of 2%.)
“Could somebody please inform Jerome ‘Too Late’ Powell that he is hurting the Housing Industry, very badly?” Trump wrote on Truth Social on August 19. “People can’t get a Mortgage because of him. There is no Inflation, and every sign is pointing to a major Rate Cut.”
Unemployment is also on the rise, which means a rate cut could be important for stimulating job growth. On Thursday, the Labor Department saw a surge in unemployment filings, with 263,000, the highest number since October 2021. Moreover, the Labor Department recently revised its data, reporting that the U.S. added 911,000 less jobs than previously reported.
“The Fed now has four months of evidence of a slowdown in labor demand that appears more persistent in nature . . . In short, ignore where inflation is today and ease policy to support the labor market,” Michael Gapen, chief U.S. economist at Morgan Stanley, said per Reuters.
According to economist Bob Triest, a professor at Northeastern University, “a series of cuts in the federal funds rate would lead toward a reduction in mortgage interest rates as well as interest rates on auto loans and other consumer loans, as well as to loans to businesses. That would lead to the economy being stimulated and that would improve borrowing conditions for consumers and businesses and also promote job creation and economic growth.”
While a rate cut does make it cheaper for companies to borrow money, it remains to be seen whether or not this will create more jobs. Companies tend to tighten their belts in uncertain economic environments. When Trump introduced tariffs earlier this year, which a judge later ruled were illegal, that uncertainty was front and center. While the president claimed the goal of said tariffs was to bring about an “economic revolution,” businesses began operating with more caution, slowing the labor market.
“We’re back in that world of uncertainty and when that happens, things freeze up, corporates don’t make decisions, investors get uncertain, and consumers start changing their behavior—and none of that’s going to drive job creation,” Art Hogan, chief market strategist at B. Riley Wealth, told Barron’s.