Fed Policymakers Focus on Labor Market as Meeting Approaches

By Ann Saphir

(Reuters) – Federal Reserve policymakers are increasingly attentive to the U.S. labor market as they prepare for a policy-setting meeting later this month. Their assessment of job-market health will be key to determining the size of an interest-rate cut.

Analysts largely expect the Fed to implement a quarter-point reduction, given that employers have continued to hire, albeit at a slower pace, and the unemployment rate has risen to a relatively low 4.3%.

However, data released on Wednesday indicated that job openings in July fell to the lowest level in three and a half years, suggesting the job market might be nearing a tipping point, potentially justifying a larger rate cut.

The ratio of job openings to job seekers, which Fed Chair Jerome Powell and other central bankers closely monitor, is now below the pre-pandemic average.

Following the report, financial markets adjusted their predictions, enhancing the likelihood of a half-point cut at the Fed’s September 17-18 meeting. Rate-futures contracts now regard a half-point cut as nearly as likely as a quarter-point cut.

ZipRecruiter Chief Economist Julia Pollak noted, “The report suggests that the labor market is cooling, and that the pace of cooling may be accelerating,” adding that she is among the minority who believe the Fed should have started cutting rates in July.

Fed policymakers have expressed that they will consider the next monthly jobs report, due Friday, and the upcoming August consumer price index data, to inform their policy decision.

The direction of their next move, however, is clear. “We must not maintain a restrictive policy stance for too long,” stated Atlanta Federal Reserve President Raphael Bostic in an essay released on the regional bank’s website prior to Wednesday’s data.