By Ann Saphir

(Reuters) – Federal Reserve policymakers are poised to initiate interest rate cuts to support a weakening labor market, following a government report revealing nearly stalled job growth and a rise in August’s unemployment rate.

Fed Chair Jerome Powell is expected to analyze the mere addition of 22,000 jobs last month with caution, especially with declining immigration rates. The unemployment rate ticking up to 4.3%, the highest since October 2021, raises concerns. Powell noted that any increase in layoffs could sharply elevate the unemployment rate.

Over a quarter of unemployed individuals have been job hunting since at least February, coinciding with President Trump’s second term. The unemployment rate for Black Americans surged to 7.5%, an indication of vulnerability in this demographic.

With a crucial inflation report due next week ahead of the September 16-17 policy meeting, the Fed faces pressure as Trump’s tariffs impact consumer prices. Despite the weak jobs data drawing attention to labor market issues, the Fed has maintained its interest rate between 4.25%-4.50% throughout the year.

Bank of America economists suggest that the August jobs report prompts a shift in the Fed’s focus from inflation to labor market weaknesses, predicting quarter-percentage-point cuts in September and December for a potential rate of 3.00%-3.25% by next year.

At the recent Kansas City Fed symposium in Jackson Hole, Powell hinted at a September rate cut, emphasizing risks to the labor market while stressing careful proceedings under stable conditions.

Economic adviser Kevin Hassett stated that the latest data may push the Fed towards more significant rate cuts, aligning with Trump’s push for reduced borrowing costs. Hassett is considered a potential successor to Powell.

Market expectations show a 10% chance of a half-percentage-point cut this month, with most anticipating a quarter-percentage-point reduction instead. However, analysts, like Goldman Sachs’ Simon Dangoor, argue that the data could lead the Fed to a more aggressive easing strategy than previously thought.