Both announcements came after Chairman Powell said at a conference in Jackson Hole, Wyoming, on August 23 that he and his colleagues “do not seek, and do not welcome, a further deterioration in labor market conditions.”
“Powell is trying to steer the Fed in a dovish direction,” said Tim Dewey, chief U.S. economist at SGH Macro Advisors. “If the economy slows unexpectedly, interest rates will be too high to accommodate and cushion the blow.”
Financial markets were volatile on Friday as the jobs report initially encouraged investors to expect a half-point cut, but those expectations retreated hours later when Fed President Christopher Waller suggested a half-point cut seemed unlikely until further data was released in the coming months.
The government is scheduled to release two more monthly employment reports between the Fed’s September policy meeting and when policymakers next meet on Nov. 6 and 7. Investors now see a more than 50% chance of a half-point rate cut at the November and December meetings.
“The Fed tends to take a loose policy,” said Steven Juneau, an economist at Bank of America. “They don’t want to send the wrong signal to the market if economic activity is still holding up, and broadly speaking, the U.S. economy still looks to be doing well.”
The quarter-point cut this month and two half-point cuts in November and December leave the central bank’s target range for interest rates at 4% to 4.25%, still well above what most Fed officials consider “neutral,” keeping pressure on economic activity.