A solid jobs report in May has reinforced the Federal Reserve’s stance that it can take its time before restarting interest rate cuts.
Officials paused in January amid extreme uncertainty about the economic outlook as a result of President Trump’s policies. The central bank has signaled it will need to see clear signs that the labor market is weakening before lowering rates again, a higher bar than in the past given expectations that inflation could reignite later this year.
The big wild card is Mr. Trump’s tariffs, the scope and scale of which have repeatedly changed since his return to office. That whiplash has left businesses and policymakers in limbo, uncertain how significantly these policies will cause prices to rise and growth to slow.
After reaching its lowest level in more than 50 years in 2022, unemployment has edged up as companies have slashed the number of available positions and slowed hiring. Fewer Americans are quitting their jobs, muting wage growth. Jobless claims are up, although layoffs have stayed low.
Friday’s data showed that the labor market is continuing to lose momentum but is not yet cracking: Employers added 139,000 jobs last month, and the unemployment rate was stable at 4.2 percent.
Haunted by pandemic-era staffing issues, companies appear hesitant to let go of employees. Instead, they have opted to cut back on hours or institute more flexible schedules.
That is the takeaway from Beth Hammack, president of the Federal Reserve Bank of Cleveland, who spoke to businesses across Cincinnati this week. She said she had heard nothing in those conversations to suggest that the Fed needed to immediately lower borrowing costs, even if business owners are on edge.
“I legitimately do not know which way this is going to break,” she said in an interview.
The labor market looks healthy, Ms. Hammack said, and with inflation not yet back to the Fed’s 2 percent target, she suggested that interest rates should be at a high enough level to continue weighing slightly on demand.
“I would rather wait and move quickly to play catch-up if I really don’t know what the right next move is,” Ms. Hammack added. “And right now, I really don’t know what the right next move is based on all of the information and policies that we’re responding to.”
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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