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Top Federal Reserve officials leave door open for large interest rate cuts if data worsens

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Top Federal Reserve officials leave door open for large interest rate cuts if data worsens

Top Federal Reserve officials have left the door open to half-point interest rate cuts, even as they signalled the US central bank would move cautiously at its meeting this month following a mixed jobs report on Friday.

In appearances on Friday, governor Christopher Waller and president John Williams of the New York Fed endorsed a series of rates cuts this year given the fall in inflation and softening of the US labour market.

Now that “downside risks” had increased, Waller said the economic backdrop “requires action” from the Fed to avoid undue damage to the labour market, which he said was “continuing to soften but not deteriorate”.

Waller stressed the economy was “performing in a solid manner” with “good” prospects for continued growth, adding he expected rate cuts would be “done carefully”. The latest jobs report, he said in a moderated discussion, was no cause for panic but represented a return to a more “normal” pace of growth.

But he signalled he was open to cutting more aggressively if the data warranted it — comments that sparked a rally in US Treasuries.

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“If the data suggests the need for larger cuts, then I will support that,” he said.

The two-year Treasury yield, which closely tracks interest rate expectations, dropped 0.1 percentage point to 3.65 per cent, while the benchmark 10-year yield fell 0.02 percentage points to 3.71 per cent.

Fed funds futures markets fluctuated on Friday, at one point pricing in a higher probability of a half-point rate cut from the Fed this month. Those bets were scaled back, however, but traders still expect more than a full percentage point of cuts this year, suggesting the central bank may have to escalate its response.

US stocks also sank on Friday, with the S&P 500 down 1.7 per cent and the technology-heavy Nasdaq Composite gauge shedding 2.5 per cent by the mid-afternoon in New York.

Williams also signalled that the Fed would react to incoming data as needed even as he underscored the economy remains on solid footing and monetary policy was “well positioned” to keep it that way.

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Their comments came just after data showed the US added 142,000 jobs in August, while the unemployment rate ticked lower to 4.2 per cent.

The figures from the Bureau of Labor Statistics released on Friday came in below economists’ expectations for 165,000 new positions but surpassed the downwardly revised 89,000 jobs created in July.

A month ago, the BLS reported employment in July rose by just 114,000, which lifted the unemployment rate to 4.3 per cent and sparked concerns that the world’s largest economy was heading for a recession.

Fed officials will meet on September 17-18 when they are expected to agree to lower rates by a quarter point from their current 23-year high of 5.25 per cent to 5.5 per cent.

Analysts said market expectations for a 0.5 percentage point cut in September was an overreaction.

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“The market is overly worried about a recession, and this report shows that there is no sign of a recession,” Torsten Slok, Apollo Global Management’s chief economist, said. “There is no need to go 50 [basis points] when the unemployment rate is falling.”

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Fed officials are scrutinising the labour market for signs of weakness as they try to push inflation back down to the central bank’s 2 per cent target, which is based on the annual change in the personal consumption expenditures index.

Core PCE, which strips out volatile food and energy prices and is closely watched by policymakers, was 2.6 per cent in August, compared with a peak of more than 5 per cent in 2022.

The increase in August payrolls was in line with the average pace of jobs growth in recent months but marked a slowdown from the monthly gain of 202,000 over the past 12 months, according to the BLS. Construction and healthcare sectors were the strongest. The manufacturing sector recorded job losses.

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Combined, employment in June and July was 86,000 roles lower than previously reported, stoking concerns that the labour market started losing momentum earlier than thought. For the month, average hourly earnings increased 0.4 per cent, translating to a 3.8 per cent year-on-year rise.

Williams forecast the unemployment rate would steady at about 4.25 per cent this year as the economy expanded by as much as 2.5 per cent, indicating little concern about an impending recession.

While Tom Porcelli, chief US economist at PGIM Fixed Income, does not expect the Fed to deliver a half-point cut this month, he said the data warrants multiple ones, underscoring the vast range of views about the economic outlook.

“If you’re waiting for evidence to show up in the most lagging of economic indicators — the payrolls report — then you are already late,” he said.

In an interview on Friday, former New York Fed president William Dudley said he was also fearful the Fed was moving too slowly, having previously advocated for the central bank to cut rates in July. He said both a recession and a soft landing were “in play”.

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Brass bands in Beijing make way for sticker shock at home as Trump returns to escalating inflation

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Brass bands in Beijing make way for sticker shock at home as Trump returns to escalating inflation

WASHINGTON (AP) — President Donald Trump returned from the spectacle of a Chinese state visit to a less than welcoming U.S. economy — with the military band and garden tour in Beijing giving way to pressure over how to fix America’s escalating inflation rate.

Consumer inflation in the United States increased to 3.8% annually in April, higher than what he inherited as the Iran war and the Republican president’s own tariffs have pushed up prices. Inflation is now outpacing wage gains and effectively making workers poorer. The Cleveland Federal Reserve estimates that annual inflation could reach 4.2% in May as the war has kept oil and gasoline prices high.

Trump’s time with Chinese leader Xi Jinping appears unlikely to help the U.S. economy much, despite Trump’s claims of coming trade deals. The trip occurred as many people are voting in primaries leading into the November general election while having to absorb the rising costs of gasoline, groceries, utility bills, jewelry, women’s clothing, airplane tickets and delivery services. Democrats see the moment as a political opportunity.

“He’s returning to a dumpster fire,” said Lindsay Owens, executive director of Groundwork Collaborative, a liberal think tank focused on economic issues. “The president will not have the faith and confidence of the American people — the economy is their top issue and the president is saying, ‘You’re on your own.’”

The president’s trip to Beijing and his recent comments that indicated a tone-deafness to voters’ concerns about rising prices have suggested his focus is not on the American public and have undermined Republicans who had intended to campaign on last year’s tax cuts as helping families.

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Trump described the trip as a victory, saying on social media that Xi “congratulated me on so many tremendous successes,” as the U.S. president has praised their relationship.

Trump told reporters that Boeing would be selling 200 aircraft — and maybe even 750 “if they do a good job” — to the Chinese. He said American farmers would be “very happy” because China would be “buying billions of dollars of soybeans.”

“We had an amazing time,” Trump said as he flew home on Air Force One, and told Fox News’ Bret Baier in an interview that gasoline prices were just some “short-term pain” and would “drop like a rock” once the war ends.

Inflationary pain is not a factor in how Trump handles Iran

Trump departed from the White House for China by saying the negotiations over the Iran war depended on stopping Tehran from developing nuclear weapons. “I don’t think about Americans’ financial situation. I don’t think about anybody. I think about one thing: We cannot let Iran have a nuclear weapon,” Trump said.

That remark prompted blowback because it suggested to some that Trump cared more about challenging Iran than fighting inflation at home. Trump defended his words, telling Fox News: “That’s a perfect statement. I’d make it again.”

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The White House has since stressed that Trump is focused on inflation.

Asked later about the president’s words, Vice President JD Vance said there had been a “misrepresentation” of the remarks. White House spokesman Kush Desai said the “administration remains laser-focused on delivering growth and affordability on the homefront” while indicating actions would be taken on grocery prices.

But as Trump appeared alongside Xi, new reports back home showed inflation rising for businesses and interest rates climbing on U.S. government debt.

His comments that Boeing would sell 200 jets to China caused the company’s stock price to fall because investors had expected a larger number. There was little concrete information offered about any trade agreements reached during the summit, including Chinese purchases of U.S. exports such as liquefied natural gas and beef.

“Foreign policy wins can matter politically, but only if voters feel stability and affordability in their daily lives,” said Brittany Martinez, a former Republican congressional aide who is the executive director of Principles First, a center-right advocacy group focused on democracy issues.

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“Midterms are almost always a referendum on cost of living and public frustration, and Republicans are not immune from the same inflation and affordability pressures that hurt Democrats in recent cycles,” she added.

Democrats see Trump as vulnerable

Democratic lawmakers are seizing on Trump’s comments before his trip as proof of his indifference to lowering costs. There is potential staying power of his remarks as Americans head into Memorial Day weekend facing rising prices for the hamburgers and hot dogs to be grilled.

“What Americans do not see is any sympathy, any support, or any plan from Trump and congressional Republicans to lower costs – in fact, they see the opposite,” Senate Democratic leader Chuck Schumer of New York said Thursday.

Vance faulted the Biden administration for the inflation problem even though the inflation rate is now higher than it was when Trump returned to the White House in January 2025 with a specific mandate to fix it.

“The inflation number last month was not great,” Vance said Wednesday, but he then stressed, “We’re not seeing anything like what we saw under the Biden administration.”

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Inflation peaked at 9.1% in June 2022 under Biden, a Democrat. By the time Trump took the oath of office, it was a far more modest 3%.

Trump’s inflation challenge could get harder

The data tells a different story as higher inflation is spreading into the cost of servicing the national debt.

Over the past week, the interest rate charged on 10-year U.S. government debt jumped from 4.36% to 4.6%, an increase that implies higher costs for auto loans and mortgages.

“My fear is that the layers of supply shocks that are affecting the U.S. economy will only further feed into inflationary pressures,” said Gregory Daco, chief economist at EY-Parthenon.

Daco noted that last year’s tariff increases were now translating into higher clothing prices. With the Supreme Court ruling against Trump’s ability to impose tariffs by declaring an economic emergency, his administration is preparing a new set of import taxes for this summer.

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Daco stressed that there have been a series of supply shocks. First, tariffs cut into the supply of imports. In addition, Trump’s immigration crackdown cut into the supply of foreign-born workers. Now, the effective closure of the Strait of Hormuz has cut off the vital waterway used to ship 20% of global oil supplies.

“We’re seeing an erosion of growth,” Daco said.

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Top Drug Regulator Is Fired From the F.D.A.

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Top Drug Regulator Is Fired From the F.D.A.

Dr. Tracy Beth Hoeg, the Food and Drug Administration’s top drug regulator, said she was fired from the agency Friday after she declined to resign.

She said she did not know who had ordered her firing or why, nor whether Health Secretary Robert F. Kennedy Jr. knew of her fate. The Department of Health and Human Services did not immediately respond to a request for comment.

The departure reflected the upheaval at the F.D.A., days after the resignation of Dr. Marty Makary, the agency commissioner. Dr. Makary had become a lightning rod for critics of the agency’s decisions to reject applications for rare disease drugs and to delay a report meant to supply damaging evidence about the abortion drug mifepristone. He also spent months before his departure pushing back on the White House’s requests for him to approve more flavored vapes, the reason he ultimately cited for leaving.

Dr. Hoeg’s hiring had startled public health leaders who were familiar with her track record as a vaccine skeptic, and she played a leading role in some of the agency’s most divisive efforts during her tenure. She worked on a report that purportedly linked the deaths of children and young adults to Covid vaccines, a dossier the agency has not released publicly. She was also the co-author of a document describing Mr. Kennedy’s decision to pare the recommendations for 17 childhood vaccines down to 11.

But in an interview on Friday, Dr. Hoeg said she “stuck with the science.”

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“I am incredibly proud of the work we were doing,” Dr. Hoeg said, adding, “I’m glad that we didn’t give in to any pressures to approve drugs when it wasn’t appropriate.”

As the director of the agency’s Center for Drug Evaluation and Research, she was a political appointee in a role that had been previously occupied by career officials. An epidemiologist who was trained in the United States and Denmark, she worked on efforts to analyze drug safety and on a panel to discuss the use of serotonin reuptake inhibitors, the most widely prescribed class of antidepressants, during pregnancy. She also worked on efforts to reduce animal testing and was the agency’s liaison to an influential vaccine committee.

She made sure that her teams approved drugs only when the risk-benefit balance was favorable, she said.

The firing worsens the leadership vacuum at the F.D.A. and other agencies, with temporary leaders filling the role of commissioner, food chief and the head of the biologics center, which oversees vaccines and gene therapies. The roles of surgeon general and director of the Centers for Disease Control and Prevention are also unfilled.

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Supreme Court is death knell for Virginia’s Democratic-friendly congressional maps

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Supreme Court is death knell for Virginia’s Democratic-friendly congressional maps

The U.S. Supreme Court

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The U.S. Supreme Court refused Friday to allow Virginia to use a new congressional map that favored Democrats in all but one of the state’s U.S. House seats. The map was a key part of Democrats’ effort to counter the Republican redistricting wave set off by President Trump.

The new map was drawn by Democrats and approved by Virginia voters in an April referendum. But on May 8, the Supreme Court of Virginia in a 4-to-3 vote declared the referendum, and by extension the new map, null and void because lawmakers failed to follow the proper procedures to get the issue on the ballot, violating the state constitution.

Virginia Democrats and the state’s attorney general then appealed to the U.S. Supreme Court, seeking to put into effect the map approved by the voters, which yields four more likely Democratic congressional seats. In their emergency application, they argued the Virginia Supreme Court was “deeply mistaken” in its decision on “critical issues of federal law with profound practical importance to the Nation.” Further, they asserted the decision “overrode the will of the people” by ordering Virginia to “conduct its election with the congressional districts that the people rejected.”

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Republican legislators countered that it would be improper for the U.S. Supreme Court to wade into a purely state law controversy — especially since the Democrats had not raised any federal claims in the lower court.

Ultimately, the U.S. Supreme Court sided with Republicans without explanation leaving in place the state court ruling that voided the Democratic-friendly maps.

The court’s decision not to intervene was its latest in emergency requests for intervention on redistricting issues. In December, the high court OK’d Texas using a gerrymandered map that could help the GOP win five more seats in the U.S. House. In February, the court allowed California to use a voter-approved, Democratic-friendly map, adopted to offset Texas’s map. Then in March, the U.S. Supreme Court blocked the redrawing of a New York map expected to flip a Republican congressional district Democratic.

And perhaps most importantly, in April, the high court ruled that a Louisiana congressional map was a racial gerrymander and must be redrawn. That decision immediately set off a flurry of redistricting efforts, particularly in the South, where Republican legislators immediately began redrawing congressional maps to eliminate long established majority Black and Hispanic districts.

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