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Federal Reserve officials have said they\u2019re increasingly confident that they\u2019ve\u00a0nearly tamed inflation<\/a>. Now, it\u2019s the health of the\u00a0job market<\/a>\u00a0that\u2019s starting to draw their concern.<\/p>\n With inflation cooling toward its 2% target, the pace of hiring slowing and the\u00a0unemployment rate edging up<\/a>, the Fed is poised to cut its benchmark interest rate next month from its 23-year high. How fast it may cut rates after that, though, will be determined mainly by whether employers keep hiring. A lower Fed benchmark rate would eventually lead to lower rates for auto loans, mortgages and other forms of consumer borrowing.<\/p>\n Chair Jerome Powell will likely provide some hints about how the Fed sees the economy and what its next steps may be in a high-profile speech Friday in\u00a0Jackson Hole, Wyoming<\/a>, at the Fed\u2019s\u00a0annual conference of central bankers<\/a>. It\u2019s a platform that Powell and his predecessors have often used to signal changes in their thinking or approach.<\/p>\n Powell will likely indicate that the Fed has grown more confident that inflation is headed back to the 2% target, which it has long said would be necessary before rate cuts would begin.<\/p>\n Economists generally agree that the Fed is getting closer to conquering high inflation, which brought financial pain to millions of households beginning three years ago as the economy rebounded from the pandemic recession. Few economists, though, think Powell or any other Fed official is prepared to declare \u201cmission accomplished.\u201d<\/p>\n \u201cI don\u2019t think that the Fed has to fear inflation,\u201d said Tom Porcelli, U.S. chief economist at PGIM Fixed Income. \u201cAt this point, it\u2019s right that the Fed is now more focused on labor versus inflation. Their policy is calibrated for inflation that is much higher than this.\u201d<\/p>\n Still, how fast the Fed cuts rates in the coming months will depend on what the economic data shows. After the government reported this month that\u00a0hiring in July was much less than expected and that the jobless rate reached 4.3%<\/a>, the highest in three years, stock prices plunged for two days on fears that the U.S. might fall into a recession. Some economists began speculating about a half-point Fed rate cut in September and perhaps another identical cut in November.<\/p>\n But healthier economic reports last week, including another decline in inflation and a robust gain in\u00a0retail sales<\/a>, have largely dispelled those concerns. Wall Street traders now expect three quarter-point Fed cuts in September, November and December, though in December it\u2019s nearly a coin-toss between a quarter- and a half-point cut. Mortgage rates have already started to decline in anticipation of a rate reduction.<\/p>\n A half-point Fed rate cut in September would become more likely if there were signs of a further slowdown in hiring, some officials have said. The next jobs report will be issued on Sept. 6, after the Jackson Hole conference but before the Fed\u2019s next meeting in mid-September.<\/p>\n Raphael Bostic, president of the Fed\u2019s Atlanta branch, said in an interview Monday with The Associated Press that \u201cevidence of accelerating weakness in labor markets may warrant a more rapid move, either in terms of the increments of movement or the speed at which we try to get back\u201d to a level of rates that no longer restricts the economy.<\/p>\n Even if hiring stays solid, the Fed is set to cut rates this year given the steady progress that\u2019s been made on inflation, economists say. Last week, the government said consumer prices rose\u00a0just 2.9% in July<\/a>\u00a0from a year ago, the smallest such increase in more than three years.<\/p>\n Bostic noted that the economy has changed from just a couple of months ago, when he was suggesting that a rate cut might not be necessary until the final three months of the year.<\/p>\n \u201cI\u2019ve got more confidence that we are likely to get to our target for inflation,\u201d he said. \u201cAnd we\u2019ve seen labor markets weaken considerably relative to where they were\u201d last year. \u201cWe might need to shift our policy stance sooner than I would have thought before.\u201d<\/p>\n Both Bostic and Austan Goolsbee, president of the Fed\u2019s Chicago branch, say that with inflation falling, inflation-adjusted interest rates \u2014 which are what many businesses and investors pay most attention to \u2014 are rising even as inflation has slowed. When the Fed first set its key rate at its current 5.3%, inflation \u2014 excluding volatile energy and food costs \u2014 was 4.7%. Now, it\u2019s just 3.2%.<\/p>\n \u201cOur policies are getting tighter with every moment in that type of situation,\u201d Bostic said. \u201cWe have to be concerned\u201d that rates are so high they could cause an economic slowdown.<\/p>\n Still, Bostic said that for now, the job market and the economy appear mostly healthy, and he still expects a \u201csoft landing,\u201d whereby inflation falls back to the Fed\u2019s 2% target without a recession occurring.<\/p>\n With the economy\u2019s outlook unclear and the Fed focusing heavily on what future data shows, there may be only so much Powell will be able to say Friday about the central bank\u2019s next steps.<\/p>\n Given the Fed\u2019s focus on how the economic data comes in, \u201cit will be difficult for Powell to pre-commit to a particular trajectory at Jackson Hole,\u201d Matthew Luzzetti, chief U.S. economist at Deutsche Bank<\/a>, said in a research note.<\/p>\n<\/div>\n\nRecommended Newsletter: <\/strong>High-level insights for high-powered executives. 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