29 Sept 2025
Federal Reserve officials have expressed heightened concerns regarding the labor market's downside risks and suggested potential interest rate cuts, while also discussing the impact of tariffs and the unsustainability of US debt. This analysis details the July JOLTS report, which showed a significant drop in job openings, and the US factory orders report, highlighting a decline in transportation equipment orders.
Fed member Waller believes interest rates should be cut at the next meeting, suggesting multiple non-consecutive reductions are possible this year, contingent on incoming data and acting proactively to prevent a labor market decline.
Another Fed official highlighted labor market risks, estimating its equilibrium at 30,000 to 80,000 new jobs per month and preparing the market for potentially weaker Non-Farm Payrolls (NFP) data. Data indicates increased downside risks for the labor market, and the economy is at full employment with a risk of an excessive slowdown.
Fed officials anticipate the economic impact of tariffs will become evident within two to three quarters, with Waller suggesting these effects might be transitory; their views on this topic are largely aligned.
Current restrictive monetary policies align with prevailing economic data, and officials emphasized the Federal Reserve's economic projections, with a preference for more detailed information within the Dot Plot.
The escalating US national debt poses a long-term challenge to economic growth and positions the country on an unsustainable fiscal trajectory that could generate future problems.
Fed members perceive higher risks associated with the labor market and slightly lower risks related to inflation.
The Job Openings and Labor Turnover Survey (JOLTS) for July recorded 8.8 million job openings, marking a 10-month low, with previous figures revised downward and current numbers falling below forecasts.
Hires and total separations remained constant at 5.3 million in July. Quits stood at 3.2 million and layoffs/discharges at 1.8 million, showing no significant changes in these specific categories overall.
Job openings decreased in healthcare and social assistance (-181k), arts, entertainment, and recreation (-62k), and mining and logging (-13k). Hiring increased in services (+86k). Quits rose in professional and business services (+197k) but fell in construction (-80k) and transportation/warehousing (-50k). Layoffs decreased in professional and business services (-130k) but increased in the federal government (+5k).
The significant decrease in job openings to a decade-low level indicates a gradual decline in demand for labor, exacerbated by heightened political uncertainty surrounding tariffs and trade policies.
US factory orders generally met expectations and were higher than the previous period; new orders, excluding transportation, increased by 1.1%, but new orders excluding defense declined by 2.5%.
A 9.7% decrease in the transportation equipment sector, which has declined in three of the last four months, was the primary factor behind the overall decrease observed in the factory orders report.
Key labor market data, including ADP on Thursday and Non-Farm Payrolls (NFP) on Friday, are anticipated. A surprisingly low ADP report could increase expectations for a weak NFP, particularly given Fed officials' concerns about labor market softness.
Given the rising downside risks to the labor market, there is a distinct possibility that upcoming economic data will reveal significant weakness in employment.
| insight | detail |
|---|---|
| Fed Waller's Rate Cut Stance | Advocates for a rate cut at the next meeting; multiple non-consecutive cuts possible this year, data-dependent. |
| Equilibrium Labor Market Level | Another Fed official estimates the labor market's equilibrium at 30,000-80,000 new jobs per month. |
| Tariff Impact Timeline | Economic effects of tariffs are expected to manifest within two to three quarters. |
| US Fiscal Sustainability | The United States is on an unsustainable fiscal path, with debt potentially challenging long-term economic growth. |
| Fed's Risk Perception Shift | Fed officials prioritize labor market risks as higher, while inflation risks are seen as slightly lower. |
| July JOLTS Job Openings | Job openings decreased to 8.8 million in July, reaching the lowest level in the past ten months. |
| JOLTS Hires & Separations | Both hires and total separations remained constant at 5.3 million in the July JOLTS report. |
| Factory Orders (Excluding Transportation) | New factory orders, excluding the transportation sector, increased by 1.1%. |
| Transportation Equipment Sector Decline | The transportation equipment sector saw a 9.7% decrease in orders, marking a decline in 3 of the last 4 months. |
