US Economy: Vigilance Against Employment Risks Continues

■ At the FOMC meeting on the 17th, interest rate cuts resumed due to a worsening employment situation. 

■ Although there hasn't been a surge in layoffs, the ongoing slowdown in the labor market may prompt the Fed to lower interest rates further. 
 
   At the Federal Open Market Committee (FOMC) meeting on September 16-17, the Fed implemented a 25-basis point rate cut, as expected by the market. The statement explicitly noted increased downside risks to employment, and the median policy rate forecast of the committee members was 3.75%, indicating two more rate cuts this year. However, internal opinions were sharply divided: nine members expected two more cuts, while six anticipated no change. The only dissent came from newly elected Governor Milan, who advocated for a one-time 50 basis point cut. Vice Chairman Bowman and Governor Waller, who had previously opposed the move, switched to support. This could be seen as an effort to alleviate concerns about the Fed's independence. 

 
   At Chairman Powell's press conference, his tone was more cautious than in the statement and the median forecast of committee members. He emphasized that the 25-basis point cut was "a risk-management measure" and did not signal the start of a prolonged easing cycle. He reiterated the need to balance risks between the Fed's two main mandates—price stability and maximum employment—and noted that policy decisions depend on data from each meeting. Regarding risk assessment, Powell mentioned that the labor market is already weakening and "no further suppression is needed," necessitating a gradual move from tight to neutral policy. On inflation, he acknowledged that tariff hikes could push prices higher, but the persistence of this effect has lessened. Taken together, these signals suggest the Fed will likely focus on mitigating downside employment risks in the near term. If the non-farm payroll report due on October 3rd fails to show significant improvement, interest rate cuts are likely to continue. 

 
   Recent economic indicators show weekly initial jobless claims fell by 33,000 to 231,000. Although this figure includes irregular claims, it still indicates a gradual weakening of the labor market. Meanwhile, economic activity remains resilient. Retail sales increased by 0.6% month-over-month in August, and manufacturing output rose by 0.2%, surpassing expectations driven by growth in sectors like automobiles. Manufacturing sentiment indicators painted a mixed picture: the New York Fed's index plunged to -8.7 in September (down 20.6 points from August), while the Philadelphia Fed's index improved substantially to 23.2 (up 23.5 points). Both surveys, however, pointed to easing inflation pressures and slowing employment trends, aligning with the Fed's risk assessment. Whether manufacturing output can continue modest growth will depend on the broader preliminary September PMI, which is scheduled for release on the 23rd. 
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