A stable labor market fortifies the Federal Reserve’s case that it does not need to be in a hurry to lower borrowing costs, keeping the central bank on course to extend its pause on interest rate cuts when it meets later this month.
June’s jobs report, which showed employers adding 147,000 jobs for the month and the unemployment rate ticking down to 4.1 percent, underscores the economy’s resilience and helps to dispel the notion that it is in need of immediate support.
“There is no urgency,” said Priya Misra, a portfolio manager at J.P. Morgan Asset Management. “They can keep pushing it out in the future,” she added on the timing of the Fed’s next rate cut.
The latest sign of a relatively sturdy labor market comes as President Trump directs a litany of attacks at Jerome H. Powell, the Fed chair, and the central bank more broadly for resisting his demands to immediately lower borrowing costs by a significant amount.
Just in the last week, Mr. Trump called on Mr. Powell to resign and penned him a handwritten note blaming him for costing the country a “fortune.” Part of the president’s ire stems from the Fed keeping interest rates at current levels at a time when the government is trying to pass a massive package of tax cuts that is expected to balloon the deficit and increase what it costs the government to cover interest payments on the national debt.
Already, the United States spends around $1 trillion a year to service those obligations.
Mr. Powell has so far remained undeterred, telling an audience of policymakers, economists and investors at the European Central Bank’s annual conference in Sintra, Portugal, on Tuesday that as long as the economy is in “solid shape,” the central bank thought it “prudent” to wait and collect more data about how the economy is evolving in light of Mr. Trump’s policies before taking any action.
Asked directly about the president’s pressure campaign on Tuesday’s panel, Mr. Powell said he was “very focused on just doing my job.”
To restart interest rate cuts after an extended pause, which has been in place since January, officials at the Fed have laid out clear criteria. Either inflation, which is still elevated and at risk of moving higher because of tariffs, appears well enough contained or the labor market starts to meaningfully weaken.
Inflation has stayed surprisingly mild in recent months, but most economic forecasters expect price pressures from Mr. Trump’s tariffs to accelerate this summer. The threat of new levies continues to hang over the country’s trading partners as the administration races toward a July 9 deadline to mint various deals. On Wednesday, Mr. Trump announced a preliminary pact with Vietnam.
Tariffs are expected to raise inflation and also hurt growth, but Fed officials have started to diverge in terms of what the magnitude of the economic fallout might be. That has caused divisions regarding the timing of when the central bank should restart interest rate cuts, with two Trump-appointed officials in recent weeks making the case for a July cut if inflation stays muted.
But other policymakers do not appear to be on board. Projections released in June showed that almost half of Fed officials forecast no cuts at all this year. A slim majority stuck to earlier estimates of half a percentage point worth of cuts.
Thursday’s jobs report wiped out any expectation that the Fed will lower interest rates in July, according to the federal funds futures market, and pushed back the projected timing of the first reduction to October.
But economists have no yet ruled out interest rate cuts this year altogether. That is because there are nascent signs that the economy, while still solid, is slowing down.
Private-sector hiring slowed in June overall, and the range of sectors still adding jobs stayed narrow. Health care, leisure and hospitality and state government accounted for a large share of the gains. The labor force also shrunk.
One complication is that getting a clear read on the health of the labor market is likely to get more difficult in light of sweeping efforts by the Trump administration to limit the flow of people entering the United States, as well as its campaign to drive out immigrants already deeply rooted in the country.
Monthly jobs growth is expected to slow, but later this year a more significant pullback in the pace may simply reflect a smaller labor force as opposed to weak demand for workers.
Ms. Misra warned that immigration restrictions, coupled with tariffs, are likely to exacerbate price pressures, giving the Fed another reason to stand pat.
“They’re going to want to see more data,” she said.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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