More Evidence for a Big Fed Rate Cut

The Labor Department's August jobs report revealed a continued weakening trend in the economy, with only 142,000 jobs added, slightly better than July but significantly lower than earlier in 2023 and 2024. This report was accompanied by downward revisions of job growth estimates for June and July by 86,000 jobs. Indicators such as reduced job openings and increased part-time workers seeking full-time employment further illustrate the softening job market, affecting both college graduates and non-graduates alike. Fed Chair Jay Powell's recent comments at the Jackson Hole conference indicated a forthcoming rate cut, with the next policy-setting meeting scheduled for September 17-18. The anticipated cut raises questions about whether it will be a half-point or a quarter-point adjustment, as the Fed aims to address the consequences of its previous tightening measures. Barney Frank, former chair of the House Financial Services Committee, criticized Powell's strict adherence to a 2 percent inflation target, which he argued compromises the Fed's dual mandate of balancing full employment with price stability. Frank highlighted that former Fed Chairs Ben Bernanke and Alan Greenspan had not intended for such targets to be inflexible, emphasizing the need for policy flexibility in response to changing economic conditions. The current economic landscape suggests that a significant rate cut is necessary to stimulate growth and address the challenges posed by the Fed's tight monetary policy. Frank's insights underscore the importance of revisiting the Fed's approach to inflation targets to better support the economy's potential.