The Federal Reserve is preparing for its upcoming policy meeting on March 18-19, facing a labor market that remains robust overall but is exhibiting early signs of weakness. This situation places the U.S. central bank in a challenging position, particularly if inflation continues to soar and the tariffs imposed by the Trump administration exacerbate price pressures.
According to the Labor Department, the job market showed an uptick in February, with employers adding 151,000 jobs, surpassing the healthy monthly growth rate of 80,000 to 100,000 suggested by Fed Governor Christopher Waller. Waller and other officials have maintained that the strength of the labor market allows the Fed to keep its benchmark overnight interest rate in the range of 4.25% to 4.50% as they await further progress in tackling inflation, which remains above the target of 2%.
However, the latest employment report indicates a rise in the unemployment rate to 4.1%, coupled with a significant increase in individuals taking part-time work due to the unavailability of full-time jobs. This change pushed a broader measure of unemployment, known as the U-6, to 8%, marking the highest level of underemployment since October 2021.
Additionally, federal job cuts were reported last month, although analysts anticipate the full impact of workforce reductions led by tech billionaire Elon Musk may take longer to appear. Julia Coronado, president of MacroPolicy Perspectives, expressed concerns that the employment report signifies a softening of the labor market, potentially foreshadowing reduced hiring in the future due to decreased immigration and federal job losses.
Following the report, traders increased their expectations for potential Fed rate cuts starting in June, while Fed policymakers will refine their rate projections in light of current economic conditions and uncertainties regarding tariff policies. Fed Chair Jerome Powell is expected to provide insights into the economic outlook and monetary policy later this week.