Pantheon Macroeconomics said Powell’s Friday remarks mark a clear change in tone from the Fed’s July minutes, which had stressed upside inflation risks. Powell now sees the “balance of risks” shifting, with weaker labor data the catalyst. July’s jobs report showed payroll growth averaging just 35k over three months, down sharply from 168k in 2024.
Powell acknowledged tariffs remain a key inflation concern, but argued that softening labor markets limit workers’ wage bargaining power, reducing the risk of tariff-driven inflation becoming entrenched.
Pantheon expects hiring weakness to push unemployment above the Fed’s 4.5% year-end forecast, reaching closer to 4.75% by late 2025. It sees tariff-driven inflation largely contained to goods and projects the Fed will cut rates by 25bp in September, November, and December — more easing than markets currently price in.
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Earlier:
- investingLive Americas FX news wrap 22 Aug: Markets cheer on Powell tilt (for now)
- Goldman Sachs – Powell warns of rising job market risks as GDP growth slows
- Fed’s Musalem: More data needed before deciding on September rate cut
This article was written by Eamonn Sheridan at investinglive.com.