The Federal Reserve (Fed) is increasingly likely to lower the benchmark interest rate at its upcoming meeting in September. This is due to the resignation of a hawkish Federal Reserve official and the rising number of dovish remarks within the Fed following the 'employment shock' in July.
On the 6th (local time), according to Bloomberg News, Mary Daly, president of the Federal Reserve Bank of San Francisco, said at an event held in Anchorage, Alaska, that "the job market has slowed down. Additional economic slowdown is undesirable," adding, "This all indicates that there is a high possibility of adjusting policies within the next few months."
On the same day, Lisa Cook, a Federal Reserve governor, also mentioned July's employment indicators during a roundtable hosted by the Boston Federal Reserve, saying, "The adjustments to existing statistics appear to be a typical turning point." Cook noted that the ongoing uncertainty facing U.S. corporations acts like a tax, remarking, "This is an unnecessary net loss."
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, stated in an interview with CNBC that, based on the deterioration in employment, "the economy is slowing down. Adjusting the benchmark interest rate may become appropriate in the short term," and he expects two interest rate cuts to occur within this year. The Fed has three meetings left this year, set for September, November, and December.
The reason Federal Reserve officials have consistently hinted at the possibility of interest rate cuts is that the job market is under strain. Earlier, the U.S. Bureau of Labor Statistics announced on the 1st that the employment figures were worse than expected. According to the Bureau, non-farm payrolls increased by only 73,000 jobs compared to the previous month, significantly below the market expectation of 100,000 to 110,000.
The Bureau also revised the increase in non-farm jobs for May down from 144,000 to 19,000 and for June from 147,000 to 14,000. The employment statistics for the two months have been revised down by 258,000 from the initial announcement.
The Bureau of Labor Statistics initially releases provisional figures related to jobs with about 70% of the total sample data and provides confirmed figures (revised figures) after supplementing the remaining sample one or two months later. While adjusting the statistics is a common occurrence, having the magnitude exceed 100,000 is unusual. Furthermore, the unemployment rate for July rose from 4.1% to 4.2%.
Signs of division are already emerging within the Federal Reserve. On the 30th of last month, the Fed held a Federal Open Market Committee (FOMC) meeting and left the benchmark interest rate unchanged at 4.25% to 4.50%, during which Michelle Bowman and Christopher Waller, both members, voted against a rate cut. This is the first time since 1993 that two Federal Reserve governors have issued dissenting opinions simultaneously during an FOMC policy decision.
Adriana Kugler, a prominent hawk within the Federal Reserve, will also resign from her position on the 8th. U.S. President Donald Trump narrowed down her successor to two candidates on the 5th, stating, "We plan to make a decision within this week." Given that President Trump has pressured the Fed for interest rate cuts, it is highly likely that a dovish figure will be appointed.