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.

“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.

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.

“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.”

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.

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”.

Maykol Fares has spent years waiting to ride the carousel in Flushing Meadows Park. It’s not for lack of courage, he clarifies. He just wasn’t tall enough — but he’s over 42 inches now — an older, more mature eight-year-old.

“Eight extreme years,” he adds (he uses that word a lot: extreme).

Maykol moved to the U.S. three years ago, from Ecuador. He comes to Flushing Meadows Park, located in the heart of Queens, N.Y., says his mom, Estefania Fares. “But this is his first time on the carousel.”

She tells me Maykol has been bugging her to ride this merry-go-round whenever they come, and today she finally relented.

Standing in line for the merry-go-round, she tells the story of how, three years ago, she and Maykol picked up and left Ecuador. The gang violence there has gotten bad. Maykol was 5 years old when they swam across the Rio Grande to reach the U.S. border.

When they made it to the other side, they turned themselves in, saying they needed asylum. In New York they joined over 180 thousand migrants who’ve arrived in the last few years, and like many others ended up in Queens, one of the most diverse counties in the U.S.

Fares says through all of that, Maykol wasn’t scared. “It was like a walk in the park for him,” she smiles, as her son stares-down one of the animals on the carousel — the one he’s had his eye on for his first ride.

“The lion,” he says, decisively.

That’s right: amidst the 64 fancy ponies that slide up and down, there’s a single grumpy looking old lion, and Maykol wants to ride him — after all, the merry-go-round is a place where reputations are made. And Maykol’s “just extreme like that,” he reminds us.

As soon as the carousel gate opens, he makes a beeline for the infamous lion. He says he isn’t scared. After all, he explains, he’s been training for this with his cousin for an entire year, doing cartwheels and strength training.

And he’s gonna need it- because this merry-go-round gets up to 200 miles an hour (or so he expects).

Mykol holds on tight and sits up straight as the carousel takes off. His mom waves at him, but he’s so focused, he forgets to look for her.

“It feels good!” he says. “Great. It’s a big lion. This is very extreme.”

The ride ends, and Maykol emerges victorious, puffing out his little chest. That lion doesn’t look so ferocious anymore.

Would he do it again?

He smiles. “A thousand times.”

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

That European carmakers were going to struggle with the transition to electric vehicles was a given. New, native EV entrants such as Tesla and BYD were always likely to make inroads, leading to share losses for traditional incumbents. The bad news is that a delayed transition is not proving any easier to navigate. 

That was the message emerging from the industry this week. Take Volvo Cars’ decision to water down its 2030 target to go full plug-in electric. This highlights how expectations on the speed of EV take-off have changed. More expensive cars, plus a dearth of charging infrastructure have conspired to slow global growth rates. In Europe, where subsidies have been cut, sales have actually gone into reverse in the past few months.  

But this delay offers no respite for traditional automakers. Their plight is epitomised by Volkswagen, which is considering shutting factories in Germany for the first time in its 87-year history. This comes after the announcement of the potential closure of a Belgian plant over the summer. 

The group’s problem is that people are not just eschewing EVs in favour of traditional cars. They are buying fewer cars overall. Indeed, European unit sales (including the UK and EFTA countries) were 12.8mn in 2023 — far below the pre-Covid peak of 15.8mn in 2019 — and growth in the first seven months of 2024 was an anaemic 3.9 per cent, according to Bernstein. How much of the lost volume is cyclical and how much is structural is anyone’s guess. (VW itself is not optimistic.) But at this rate, it will not be regained any time soon. 

Ordinarily, carmakers in a slump would rush to launch new, cheaper cars — even at lower margins — to entice consumers and keep factories ticking over. But the uncertain trajectory towards electrification makes it hard to invest in new internal combustion models.

Cheap European EVs, meanwhile, remain a far-off dream. This limbo affects consumers, too, who may be putting off buying a new car until the fog clears. That helps explain Volkswagen’s decision to focus on cutting costs and capacity instead. Already, Harald Hendrikse at Citigroup forecasts, the group will miss its margin target for the year. 

It is hard to see how European carmakers can thrive while the market is in a muddle. And when EVs do finally resume their growth path — as seems inevitable — they will have to grapple with margin dilutive sales and fierce competition. The sector’s path looks anything but smooth.

camilla.palladino@ft.com