Fed's rate cut signals concern
Federal Reserve Vice Chair Philip Jefferson warned that the US job market had begun to weaken, raising the stakes for mortgage professionals as the central bank weighed its next moves.
Speaking at the Bank of Finland’s International Monetary Policy Conference, Jefferson said he expected US economic growth to slow to about 1.5% for the remainder of the year, with the labor market “softening, which suggests that, left unsupported, it could experience stress.”
The US economy grew at its fastest pace in nearly two years in the second quarter, with gross domestic product (GDP) revised up to an annualized 3.8% rate, according to the Commerce Department’s latest estimate.
Meanwhile, weekly jobless claims fell by 14,000 to 218,000, signaling continued labor market strength, though the jobless rate ticked up to 4.3% in August.
Jefferson’s remarks came as the Fed cut its benchmark rate to the 4%–4.25% range—the first move since December. Policymakers projected two more cuts this year, aiming to balance persistent inflation with a labor market that Jefferson characterized as increasingly fragile.
“The unemployment rate could edge a bit higher this year before moving back down next year,” he said.
“I expect the disinflation process to resume after this year and inflation to return to the 2% target in the coming years.”
Mortgage markets have tracked the Fed’s signals closely, with lenders and brokers noting that rate cuts typically spur refinancing activity and homebuying demand. However, Jefferson’s emphasis on labor market risks suggested a more cautious outlook.
Uncertainty around US trade and immigration policy has further complicated the Fed’s outlook. “I view the uncertainty around my baseline outlook as especially high, mainly due to the new policies being introduced by the current US administration and their effects on employment and inflation,” Jefferson said.
He flagged tariffs as a factor that could push inflation higher, though he noted that the impact so far had been less severe than some forecasters anticipated.
Looking ahead, Jefferson said the Fed would maintain a “balanced approach” to its dual mandate of maximum employment and stable prices.
“With respect to the path of the policy rate going forward, I will continue to evaluate the appropriate stance of monetary policy based on the incoming data, the evolving outlook and the balance of risks,” he said.
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