Despite acknowledging that “uncertainty about the economic outlook has increased further,” the steady stream of generally solid economic data from the past few months prompted the Fed to hold key interest rates steady today. The decision is a vote of confidence in the enduring strength of the US labor market, which has thus far weathered several potentially disruptive policy shifts in trade, immigration, and government spending. Many broad economic indicators — including job growth, unemployment, and layoffs — have held steady in recent months. However, the hard economic data isn’t matching the vibes, as soft data coming from consumer and business confidence surveys suggest a risk of rapid deterioration in the months ahead.
Real-time data from the Indeed Job Postings Index also shows early signs of policy impacts trickling into the labor market. Notably, job postings in scientific research & development (including many jobs targeted by federal spending and employment cuts) have fallen by nearly 16% since the inauguration (compared to a 4% decline for all postings). While these jobs account for a relatively small share of overall US employment, the dramatic decline shows a clear early impact of shifting government policy.
Looking ahead, tension is growing between the Fed’s dual mandate to keep Americans employed and prices stable, and the Fed acknowledged in its statement that “the risks of higher unemployment and higher inflation have risen.” High tariffs and restrictive immigration policies have each had inflationary effects in the past. And while the unemployment rate has stabilized in recent months, the underlying data shows that jobless workers are taking longer to find work. The labor market has exhibited remarkable resilience in recent years, but it is approaching a potential tipping point where the Fed might have to choose between holding up the job market or keeping inflation in check.
