(Washington) After focusing on inflation for three years, a Fed official said Wednesday that he is now giving as much importance to the employment situation as to rising prices, as the institution prepares to lower its rates.
“Given the circumstances ahead – eroding pricing power and a slowing labor market – I have rebalanced my focus to both sides of the dual mandate for the first time since early 2021,” Atlanta Fed President Raphael Bostic said Wednesday.
The Fed, in fact, has a dual mission: to ensure price stability and guarantee full employment.
To counter the surge in inflation, which in 2022 was at its highest in more than 40 years, the Fed raised its rates, which are currently in the range of 5.25 to 5.50%.
This has the effect of easing pressure on prices, slowing down economic activity. And, consequently, slowing down employment.
The unemployment rate rose to 4.3% in July. The August rate will be released on Friday, and is expected at 4.2%.
“The labor market continues to weaken, but it is not weak,” said Raphael Bostic, who has the right to vote on the Fed’s decision-making committee in 2024.
He said he has spoken to employers in the Atlanta area, who say “they are hiring more cautiously,” and that “some are even looking to reduce staff. But few are considering layoffs.”
“Some fear that mass layoffs will tarnish their reputation,” the official added.
Raphael Bostic said he did not sense “imminent panic among business contacts. However, the data and our comments on the ground describe an economy and a labor market that are losing momentum.”
“The advantage is that the slowdown in activity is fuelling a continued and welcome decline in the rate of inflation,” he said, adding that he was “not quite ready to declare victory over inflation.”
Fed Chairman Jerome Powell recently said that “the time has come for a policy adjustment” – that is, for rate cuts. The first is expected at the Fed’s next meeting, on September 17-18.