On Thursday, the Chairman of the New York Federal Reserve expressed that the recent tariff increases implemented by the White House have not yet had a significant impact on overall inflation trends. This statement has cleared a potential hurdle for the Federal Reserve to lower interest rates at its September meeting. Speaking at the New York Economic Club, the Chairman emphasized that there has been no noticeable effect of tariffs on inflation, suggesting that the Fed may have more flexibility in adjusting monetary policy.
The Chairman’s remarks align with those made by the Federal Reserve Chairman at the Jackson Hole annual symposium, further reinforcing the policy signal for a rate cut. Analysts have pointed out that the lack of significant inflationary pressure means that the Federal Reserve may face less resistance in initiating a rate cut during its FOMC meeting scheduled for September 16-17. Derivatives market traders are currently widely anticipating that the Federal Reserve will reduce interest rates by 25 basis points at its upcoming meeting.
For a long time, the President has repeatedly urged the Federal Reserve to lower interest rates as soon as possible, even mocking the Chairman for being too slow to act. This year, the Federal Reserve has maintained a high-interest rate policy aimed at exerting downward pressure on inflation. However, the high-interest rate environment has also taken a toll on interest-sensitive sectors such as real estate and automobiles, while also dampening economic growth.
The Chairman highlighted that high-interest rates have already led to a noticeable cooling of the labor market. According to the latest data from the Department of Labor, the pace of job growth has almost stagnated since May. He warned that if the “overly tight policy” is maintained for too long, it could unnecessarily disrupt the stability and health of the job market.
The Chairman anticipates that the U.S. economy will continue to slow down over the next few months, with uncertainties surrounding trade and immigration policies continuing to suppress economic growth. He predicts that the unemployment rate will gradually rise to around 4.5% next year. At the Jackson Hole conference, the Chairman also expressed concern about a sudden sharp increase in the unemployment rate, noting that historical cycles show that once the job market begins to deteriorate, it often does so rapidly.
Regarding inflation, the Chairman expects that the inflation rate will temporarily rise above 3% in the short term, before gradually declining to 2.5% by 2026 and returning to the Federal Reserve’s long-term target of 2% by 2027. Despite market expectations for a rate cut this month, internal disagreements within the Federal Reserve have become more pronounced. Some members, including the Chairman of the Federal Reserve Board of Governors, the Chairman of the Federal Reserve Bank of San Francisco, and the nominee for the Federal Reserve Board of Governors, favor further rate cuts. Others, including the Chairman of the Federal Reserve Bank of Cleveland, the Chairman of the Federal Reserve Bank of Atlanta, and the Federal Reserve Board of Governors, are more concerned about inflation risks.