Central bank depository.

A surprisingly sharp downward revision in U.S. job growth enhances the likelihood that the Federal Open Market Committee (FOMC) will reduce the federal-funds rate at its September meeting.
 

SEI’s view.

A surprisingly sharp downward revision in U.S. job growth enhances the likelihood that the Federal Open Market Committee (FOMC) will reduce the federal-funds rate at its September meeting. The recent resignation of a Federal Reserve (Fed) governor also gives President Donald Trump the opportunity to appoint a replacement that is more sympathetic to lowering the policy rate. During the FOMC’s meeting in late July, two dissenters argued for a 0.25% rate cut while other members also have struck a more dovish tone of late. The European Central Bank and the Bank of Canada have been cutting rates aggressively for more than a year due to economic weakness and muted inflation. The Bank of England and the Fed have been slower to ease monetary policy as their inflation rates remain well above target. The U.S. has reached trade agreements with several major trading partners. The current effective average tariff imposed on imported goods amounts to 18%—equal to the rate following the enactment of the Smoot-Hawley Act in 1930—compared to 2.5% in 2024. Since other countries have mostly avoided retaliation, the impact on the global trading system should not be as negative as it otherwise could be. Nonetheless, the tariffs will likely weigh on global economic growth and lead to a period of higher inflation in the U.S. SEI expects the Fed to look through the impact that tariffs may have on prices and reduce the federal-funds rate in September.

Federal Reserve (Fed).

• In a split 7-2 vote, the Federal Open Market Committee (FOMC) left the federal-funds rate unchanged in a range of 4.25% to 4.50% following its meeting on July 29-30. Two Committee members supported a rate cut of 25 basis points (0.25%).
• In a statement announcing the rate decision, the FOMC noted that “growth of economic activity moderated in the first half of the year” and that inflation “remains somewhat elevated.” The FOMC reiterated that it will continue to assess “a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations…”
• At a news conference following the Committee meeting on July 30, Fed Chair Jerome Powell stated that the central bank’s decision on a rate cut would be dependent upon the “totality of the evidence” released before the next FOMC meeting in mid-September. “We have made no decisions about September,” Powell said. The Fed Chair also cited the difficulties that the central bank faces in seeking to achieve its dual mandate of maximum employment and stable prices, noting that the Fed is “trying to do the right thing in what is a challenging situation because you're being pulled in two directions and you have to decide which of those to go in.”

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