Experts are criticizing the Federal Reserve for being behind the ball after July’s jobs report showed a weakening labor market, two days after the Fed decided to leave its interest rate unchanged. Economists say the Fed’s restrictive monetary policy is now hurting the once-robust labor market.
In July, the U.S. economy added 114,000 jobs, a huge miss from the 175,000 jobs expected. Unemployment ticked up to 4.3% from 4.1% in June.
“I think that all of those indicators tell us that the Fed needs to act. They should have acted in their last meeting, maybe even a little earlier than that,” said Seth Harris, former Acting and Deputy Labor Secretary under President Barack Obama. “Now the question is, how big of a bump do they need to give? Is it 25 basis points? Is it 50 basis points?
“Let me just say, nobody was talking about 50 basis points before this report,” he added. “I think we’re now going to see people talking about 50 basis points and some folks will even talk about more. So I think that this report really sends a signal to the Fed. The boat is pulling out, the train is leaving the station, whatever analogy you want to use, and they need to get on board.”
Fed Chair Jerome Powell hinted that a September rate cut could be on the table during a press conference Wednesday, June 31, ahead of Friday’s jobs report.
The Fed is holding its interest rate at a two-decade high in an effort to tame inflation, but Harris said the weakening labor market requires a more decisive approach.
“Go ahead and cut rates aggressively and send an indication that you really are concerned about growth and you’re also concerned about employment,” Harris told Straight Arrow News. “To me, a 25 basis point cut was signal sending. It wouldn’t have had a dramatic effect on the economy directly, but by sending the signal that their concerns about inflation have been reduced, that inflation descended to a level that suggests that we’re going to be just fine in that area, but that they are also concerned about growth and employment.
“That was signaling, not policymaking. Now, I think they have to think about policymaking. After seeing these numbers, I think they have to think about policymaking.”
