Three Fed officials have expressed concerns after the non-farm payroll report, and the probability of a September rate cut has increased significantly.

Author: Bao Yilong, Wall Street Journal

Three Federal Reserve officials expressed fresh concerns about the latest signs of weakness in the U.S. labor market, significantly strengthening market expectations for an interest rate cut as early as September.

On Wednesday, San Francisco Fed President Mary Daly explicitly stated that policy adjustments may be needed in the "coming months" to prevent further deterioration in the job market.

Previously, Fed Governor Tim Cook and Minneapolis Fed President Neel Kashkari stated that weak employment data was shaking the Fed's policy balance.

These statements were a direct response to last week's non-farm payroll report, which showed that U.S. job growth in July was far weaker than expected, and data for the previous two months was significantly revised downward, with the unemployment rate also rising.

Fed Governor Tim Cook even described data revisions as a typical sign of an economic "turning point," further fueling market speculation of a rate cut. Following these officials' comments, investor expectations for the Fed to initiate a rate cut at its September meeting rapidly intensified. The FOMC previously decided to maintain interest rates at their current level at its late July meeting, and the latest dovish comments suggest a significant shift in policy stance at the next meeting. The statements from three Fed officials on Wednesday provided the market with the clearest signal yet of a policy shift. San Francisco Fed President Mary Daly, in remarks prepared for an event in Alaska, said: "The labor market is already showing signs of weakness, and I believe any further slowdown in employment would be a cause for concern."

She added:

All of this means that we will likely need to adjust policy in the coming months.

Meanwhile, Minneapolis Fed President Kashkari expressed similar concerns in a media interview, noting that the economy is slowing. Kashkari said:

In the short term, a rate cut may be appropriate.

He also reiterated that he expects the Fed to cut interest rates twice by the end of 2025.

Federal Reserve Board Governor Cook interpreted the data itself to have a deeper meaning. She noted that the significant downward revisions to previous months' data in the July employment report are, to some extent, typical of an economic turning point. This statement suggests that policymakers have begun preparing for a potential economic inflection point. Balancing Policy Shifts with Inflation Risks While the signal for rate cuts has become increasingly clear, officials' speeches also revealed that the Fed is still carefully balancing its dual mandate: controlling inflation and achieving full employment. Daly stated that the interest rate adjustment is intended to "recalibrate" policy to better align the risks of its inflation and unemployment goals, which she believes are currently "roughly balanced." Even so, Daly emphasized that the Fed still has more work to do to fully cool inflation to its 2% target. She also mentioned that tariffs will push up prices in the short term, but the impact may not be long-lasting enough to require a policy response from the central bank. Earlier this week, Daly said two rate cuts this year might be appropriate, but there was also the possibility of more than two rate cuts, which left room for more aggressive easing policies.