By all appearances, the Federal Reserve remains committed to its most finely honed skill: doing nothing. Despite five consecutive meetings without a single move on interest rates, July’s feeble job report may finally be the nudge even a central bank can’t ignore forever.

New data from the Bureau of Labour Statistics shows payroll gains limping along at just 35,000 jobs a month over the past quarter, the weakest hiring pace since the pandemic’s darkest days. The unemployment rate? Up to 4.2%. And just for good measure, May and June were quietly revised downwards by a total of 260,000 jobs. One might assume these figures would’ve swayed the FOMC had they arrived before Wednesday’s meeting, but no. The Fed stayed true to form, citing “resilience” in the labour market. One must admire their consistency, if not their foresight.

In the face of this statistical underperformance, markets did what markets do: they panicked with poise. Rate cut probabilities for September surged to nearly 90%, up from 40% the previous day. Treasury yields dropped. Futures traders began whispering of a 50-basis-point move. History doesn’t always repeat, but it does occasionally hire the same scriptwriter.
Meanwhile, the Fed’s chorus of voices, usually in barbershop harmony, now sounded more like a pub debate. Minneapolis Fed President Neel Kashkari, never one to waste airtime, told CNN:
“I’m not surprised. Tariffs raise prices and slow the economy—we’re getting both.”
Atlanta’s Raphael Bostic took a slightly more concerned view on CNBC, hinting that the risks to employment and inflation might finally be reaching parity. Still, when asked if he’d change his vote if he’d had the data earlier, he replied, “I don’t think so.”
President Donald Trump, unsurprisingly more economist than statesman these days, could barely contain his glee. Following the dissents by his Fed appointees Christopher Waller and Michelle Bowman, he bellowed on social media: “STRONG DISSENT AT THE FED BOARD. THIS WILL ONLY GROW!” He also implored other governors to “take control” if Powell doesn’t see the apparent need for cuts. Nothing quite says central bank independence like a presidential tweet storm.

But here’s the rub: growth is clearly sputtering, as the latest data illustrates. Yet what’s looming on the horizon may prove even more pernicious: a fresh wave of tariff-induced inflation, masquerading as “protectionism” and delivered with a red baseball cap. This isn’t just a growth scare; it’s a policy-induced stagflation risk.
Historically, when forced to choose between anaemic growth and runaway inflation, the Federal Reserve has never been shy about sacrificing the former. In the early 1980s, Paul Volcker throttled the U.S. economy into a brutal recession to crush inflation. Even in 2006–2007, the Fed raised rates despite a housing slowdown, prioritising inflation containment, right into the jaws of the financial crisis.
So yes, the Fed might cut in September. But if inflation starts to tick up thanks to tariff blowback, don’t count on Powell to prioritise jobs over prices. In this town, growth may be nice, but inflation control is sacred even if it means torching the economy to appease the gods of price stability.