Inflation’s sitting around 3% above the 2% target, and even though tariffs are shaking things up, those effects might calm down in 6 to 9 months—but who knows, it could drag on longer. The Fed’s juggling two priorities: keeping an eye on inflation, which is 1% over target, and watching out for employment risks. I reckon the job market’s pretty stable, hovering around full employment, but there’s a hint of weakness. Payroll numbers weren’t great and had some big adjustments. Labor demand and supply both slipping a bit, likely thanks to less immigration, so we might see nonfarm payroll below 50K. Yet, despite slower job growth, unemployment’s stuck at 4.2%. I take things one meeting at a time, trying to stay ahead. These past couple of months, I’ve been rethinking the labor situation, seeing more weakness, but dialing down my inflation concerns from tariffs. Too soon to say for sure what policy I’ll back. Inflation might hang on, but I’m not set on that. We might see slower growth squishing margins and potentially jobs, but the businesses I talk to aren’t talking layoffs. My job’s to hear out Main Street and folks I represent. Service inflation’s up, which is odd. Tariffs might take a couple more quarters to fully impact things. I’d wait for a bit more data before making any big calls. From what I see, a 50-point rate cut doesn’t hold water with the data we’ve got. Clearly, he’s on the fence about September’s move; 50 points isn’t in the cards. Even with risks lurking for inflation, that’s not his main view. While unemployment might tick up, anecdotal chatter doesn’t back layoffs. I’d peg Musalem in the undecided camp, weighing how tariffs dance with inflation and the economy.
By topic:
Inflation:
– Inflation’s roughly 3% higher than the 2% target.
– Risks are there for stickier inflation, but that’s not the main view.
– Unusually, service prices are climbing.
Tariffs:
– Playing a role in inflation, but might ease off after 6–9 months, though could linger.
– Could need 2–3 quarters to fully hit inflation.
– I’ve adjusted inflation expectations downward because of tariffs.
Labor Market:
– Feels stable near full employment, but there’s some softening.
– Payroll growth was low with big downward tweaks.
– Both demand and supply of labor have dipped.
– With fewer immigrants, nonfarm payroll might slip below 50K.
– Despite slower job growth, unemployment’s steady at 4.2%.
– Slower growth and pressure on margins could cut jobs, though layoffs aren’t being mentioned.
Policy Approach:
– Fed’s got two jobs: tackling inflation and worrying about employment risks.
– Evaluating things meeting by meeting, being proactive.
– Recently adjusted my view on labor weakness upwards.
– Too early to pick a specific policy path.
– A 50-basis-point cut doesn’t stack up with the data.
Perspective & Communication:
– Job’s to hear from Main Street and my district.
– More info would be useful before pinning down policy.
This piece was crafted by Greg Michalowski over at investinglive.com.
