Is the Fed behind the curve — again?

Washington CNN With a pivotal Federal Reserve meeting coming up this week America s central bankers are confronted with an all-too-familiar question Is it already too late to step in In just a scarce days the central bank is expected to lower interest rates for the first time since December to shore up America s crumbling labor industry Unusually weak hiring in latest months has locked in a rate cut according to futures with perhaps a limited more by year s end But particular central bankers namely Fed governors Christopher Waller and Michelle Bowman both appointed by President Donald Trump say the Fed should have cut interest rates in July echoing Trump s loud demands to lower borrowing costs During a speech in Miami on August Waller a anticipated Fed chair candidate reported monetary protocol risks falling behind the curve if economic conditions continue to weaken Fed representatives wait for months of facts before deciding to pivot on rates but it s notoriously intricate to time with razor-sharp precision That timing is crucial because it can impact the jobs of millions of Americans and whether inflation shoots higher In the Fed was criticized for responding too late to rising inflation In getting the timing right for rate cuts is an even tougher task with Trump s widespread tariffs already pushing up certain prices and the US labor realm hitting a lull in hiring And whether the Fed has already missed its cue is the million-dollar question that I think no one knows the answer to Brent Schutte chief assets officer at Northwestern Mutual Wealth Management Company explained CNN The Fed s tough job Economic forecasters don t consistently get it right and neither does the Fed In specific economists and Fed representatives including Fed Chair Jerome Powell noted a bout of inflation would prove to be only transitory which ended up not being the situation And in forecasters and Fed economists predicted a recession that never happened The Fed isn t any better at reading the tea leaves than all the other private forecasters out there announced Kent Smetters an economics professor at the University of Pennsylvania s Wharton School The central bank has to factor in abstract concepts such as the lagging effects of interest rates and the so-called neutral rate of interest the point where borrowing costs neither stimulate nor dampen economic activity Monetary approach lags in terms of how much it stimulates the market so ideally it should move a couple months ahead of weaker jobs numbers commented Smetters But the Fed also can t place a lot of weight on statistics for a single month or even two Last year the unemployment rate climbed hurriedly in a short period and there was similar criticism that the central bank was too late to lower rates Then the Fed stepped in with a bold half-point rate cut to stave off further weakening By the end of last year it turned out that the labor industry wasn t falling off a cliff In December employers added a massive jobs as the unemployment rate edged down from the prior month to The Fed s efforts last year manifested that despite central bankers good-faith attempts to right-size their protocol in a timely manner there isn t a science to it and they could be off-point The challenge of Trump s policies Powell has stated that if it weren t for Trump s pact war the Fed would have already lowered interest rates at this point this year Instead Trump s unprecedented tariffs have squeezed businesses and begun to erode American consumers purchasing power This has threatened both sides of the Fed s dual mandate stable prices and maximum employment According to the Fed s preferred inflation gauge the Personal Consumption Expenditures price index inflation of goods exposed to tariffs such as appliances and furniture has already crept up and could continue to rise in the months ahead But several Fed officers have warmed up to the idea that tariff inflation may be short term possibly resulting in only a one-time price adjustment San Francisco Fed President Mary Daly wrote in a contemporary social media post that tariff-related price increases will be a one-off St Louis Fed President Alberto Musalem explained as much at a September event stating that he expects the effects of tariffs will work through the market over the next two to three quarters and the impact on inflation will fade after that Not only does the tariff situation remain highly uncertain despite Fed officers higher hopes that tariff inflation may be limited but so does the future of the labor region Before Powell opened the door to rate cuts in his keynote speech at the Kansas City Fed s annual economic symposium last month the Fed chief had repeatedly described the labor arena as solid with various downside menace But the the greater part contemporary federal statistics established that the labor industry was on shakier footing than previously thought Last week the Labor Department disclosed that US job development in the year ending in March was running at a much slower pace than previously announced Job gains were revised down by during that period the biggest downward revision on record Since March job expansion has continued to slow to a crawl with more industries shedding jobs than adding Labor industry momentum is being lost from an even weaker position than originally thought reinforcing expectations of meaningful interest rate cuts James Knightley chief international economist at ING stated in a September note after the benchmark revision was issued Chicago Fed President Austan Goolsbee stated in a speech last month that the Fed s meetings this fall will be live meaning framework decisions will not be obvious and will be subject to incoming material We re going to have to figure it out he noted The-CNN-Wire Cable News Grid Inc a Warner Bros Discovery Company All rights reserved Source