Fed Preview: Powell’s reason to cut rates

The US Federal Reserve (Fed) will likely look to address its full employment mandate in their next policy decision.

Metrobank forecasts that the Fed will deliver a 25-basis point cut in its next meeting on September 16-17, EDT.

But wait, inflation remains elevated

Measures of inflation in the US remain in warm territories. Both the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) remain elevated and refuse to tread toward the 2.0% target.

Sticky services inflation largely contributed to elevated inflation. Some prices were also pulled up by higher tariffs in the US.

Labor market sounds an alarm

Jobs data continued to disappoint and confirmed speculations on a weak labor market in the US.

Nonfarm payrolls rose just 22,000 in August. What’s more alarming is the final revision for June which showed 13,000 job losses. The last time the US saw negative monthly figure was in December 2020.

These numbers show a labor market in a precarious state. So, after months of pressure from President Donald Trump to lower borrowing costs, Powell may finally cut policy rates to support a jobs market that’s vulnerable to recent policies on tariffs and immigration.

Scale weighs more on jobs

The Fed now faces a tricky situation on its dual mandate. Inflation remains persistently elevated, which usually calls for the Fed to keep interest rates steady to cool prices. On the other hand, the labor market flashes signals of weakening, which typically calls for lower interest rates to stimulate economic activity and maximize employment.

Despite elevated inflation, a weak labor market—alongside moderating growth momentum—builds the case for a policy rate cut as early as the next meeting.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)

MARIAN MONETTE FLORENDO is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She holds an undergraduate degree in Mathematics from Ateneo de Naga and a master degree in Economics from UP Diliman. She loves traveling and watching mystery movies in her spare time.