The bumper August jobs report has just sharpened the Federal Reserve’s September dilemma: the labor market is no longer giving Kevin Warsh an easy excuse to spare Donald Trump a rate hike. The economy added 162,000 jobs in August, far above the 31,000 average monthly gain over the prior 12 months, while unemployment held at 4.1 percent, the Bureau of Labor Statistics (BLS) said Friday. June and July payrolls were also revised up by a combined 55,000 jobs.
That is the problem for Trump. The president has spent months pressing hard for lower borrowing costs, and Vice President JD Vance said Thursday that the administration believes the Fed “should be lowering interest rates.” "It's something that we care a great deal about," Vance told reporters, pointing to the increased costs to homebuyers. But Warsh, who took office as Fed chair on May 22 after Trump nominated him, now faces the opposite pressure from the data itself.
The Fed’s next policy meeting is set for September 15-16, leaving one more inflation reading to shape the decision. If he is anything like his predecessor as chair, Jerome Powell, Warsh will be unswayed by the political pressure, no matter how many times he is labeled a "moron" and a fool. Or worse: subject to dubious Department of Justice probes.
Inflation is still well above target. The Commerce Department’s July PCE price index rose 3.7 percent from a year earlier, while core PCE rose 3.3 percent. Warsh used his first Jackson Hole speech last month to underline that the Fed’s preferred inflation gauge was running above its 2 percent target and so “the Fed’s predominant focus right now should be on prices.” "There is one signal nobody can miss: The responsibility for 65 months of sustained, elevated inflation sits squarely with the central bank.
And that is where it belongs," Warsh said. "Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.
That's our job, our mandate, and our charge to keep." It was taken as a clear sign that rate hikes were ahead. The August payrolls number now strengthens that hand. A weak report would have given Fed doves a neat argument for waiting.
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