By
Derek Hamilton
September 02, 2025
The US Federal Reserve (Fed) governs monetary policy based on a dual mandate of promoting maximum employment and
price
stability. After lowering interest rates by a full percentage point over a three-month span starting in September
2024,
policy uncertainty from the Trump administration drove the Fed to focus on higher inflation risks, causing it to
leave
the federal funds rate unchanged – with its target range at 4.25% to 4.50% – since December 2024.
We recently wrote about the impact of tariffs on inflation
and the effect of immigration on employment. While
inflation
is expected to increase in the coming months, the Fed seems more confident that tariff-induced price increases will
not
be repeated. At the same time, the outlook for employment has deteriorated, with the chart below showing the slowest
pace of job gains since the COVID-19 pandemic.
Fed Chair Jerome Powell recently indicated that weaker job growth could cause the central bank to focus more on the
downside risks to employment and take steps to mitigate them, such as through multiple rate cuts, even if some of the
jobs weakness may be due to diminishing immigration. As the economy encounters a soft patch, the Fed seems ready to
act.
While rate cuts should be helpful in the short term, we fear further politicization of the Fed’s actions could sow
the
seeds for future inflation. We plan to examine this topic in a future insight.
Monthly payroll employment growth, 3-month moving average
Sources: Macquarie, Macrobond, US Bureau of Labor Statistics (BLS).
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