Diane Swonk on Low Employment Rate, Fed Rate Cuts, and Economic Risks

Economic Revisions and Fed Decisions

• 💡 The recent economic revisions, while not drastically changing the July decision, nudge the Federal Reserve closer to a September rate cut.
• ⚠️ A key point is that Fed official Bostic, who previously forecasted stagflation and no rate cuts, is now signaling a potential cut, indicating a significant shift.

Factors Affecting the Employment Rate

• 📉 The unemployment rate remains low primarily due to a constrained supply of workers.
• 👥 A significant factor is the loss of 1.5 million foreign-born workers since April.
• 👴 Retirements are also picking up, with many baby boomers reaching retirement age and claiming social security benefits, some early due to future benefit concerns.

Federal Reserve's Balancing Act

• ⚖️ The Federal Reserve faces the challenge of balancing upside risks to inflation with downside risks to jobs.
• 🎯 The Fed's strategy involves assessing which risk is likely to be furthest from their target in the future.
• 📈 There's a potential tilt towards concern that jobs may end up being further from the target than inflation.
• 🗣️ Fed governors Waller and Bowman express confidence that inflation from tariffs is a one-time event, allowing focus on the employment mandate.

Tariff Impact on Economic Outlook

• 📊 Tariffs are identified as a moving target, but clarity is emerging, with a potential settlement around 15%.
• 🏦 The Federal Reserve can use this estimated tariff rate for its calculations, with potential for downside surprises rather than significant upside.