Federal Reserve officials are likely to pay close attention to Friday’s jobs report as they move toward their first rate cut since the 2020 pandemic downturn. The fresh data gave them reasons for both comfort and concern.
Unemployment eased slightly to 4.2 percent in August, from 4.3 percent in July.
At the same time, hiring was slower than economists had expected and previous months were revised downward. Altogether, the report’s details suggested that the job market is slowing — but not imploding — more than two years into the Fed’s campaign to slow the economy with higher interest rates.
Fed policymakers raised interest rates starting in 2022 to tap the brakes on a hot economy. At the time, hiring was rapid and wage growth robust, and officials worried that a burst of rapid inflation would not fade on its own against that backdrop. They ultimately lifted borrowing costs to a more than two-decade high of 5.3 percent, where they remain.
But inflation is cooling notably and wage gains have steadily moderated, and Fed officials have become increasingly wary of overdoing it. They wanted to return the job market and economy to a sustainable pace, but they do not want to cause either to crash.
That is why the Fed is poised to lower interest rates. The question has been whether policymakers would cut rates by a quarter percentage point or a half percentage point at their Sept. 17-18 gathering. That was one reason Friday’s jobs report was in focus: Economists thought that it could inform the size of the Fed’s coming move.
But because the report contained both good and bad news, exactly how officials would interpret it was unclear.
Two Fed officials are speaking on Friday, so investors could have an immediate opportunity to see how central bankers are reacting to the latest job market data. John C. Williams, president of the influential Federal Reserve Bank of New York, began speaking at 8:45 a.m. And Christopher J. Waller, a Fed governor, is scheduled to speak later this morning.
“We’ve come a long way from the unacceptably high inflation and overheated labor market that we experienced two years ago,” Mr. Williams said in prepared remarks, adding that “policy needs to adjust” without specifying how much.
Once the Fed starts to move, lower interest rates should slowly trickle out through the economy to keep growth from slowing too much. Already, mortgage rates have started to nudge down thanks to expectations for lower Fed borrowing costs.
That could shore up demand and help to prevent the job market from slowing a lot more.
“We do not seek or welcome further cooling in labor market conditions,” Jerome H. Powell, the Fed chair, said during his latest speech.
He also said that the Fed “will do everything we can to support a strong labor market as we make further progress toward price stability.”
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