U.S. Labor Market Weakens, Fed Expected to Cut Interest Rates

According to PANews, Mizuho Bank has indicated that the U.S. labor market is showing signs of weakening, as evidenced by the August non-farm employment report. Employment, working hours, and income growth have all returned to levels seen during the pandemic. Regardless of inflation trends, the Federal Reserve is almost certain to cut interest rates at its September meeting. A reduction of 25 basis points is nearly guaranteed, but if August inflation is weaker than expected, a 50 basis point cut is more likely. The Federal Reserve's previous inflation forecasts have been contradicted by reality, and its unemployment rate predictions for 2026 face the risk of not being realized. The Fed was previously too pessimistic about inflation and overly optimistic about the labor market. It is anticipated that the Federal Reserve will initiate a sustained easing cycle, aiming to lower rates to what it considers a 'neutral level,' approximately 3% by March 2026. The new Federal Reserve Chair is likely to further enhance stimulus measures, potentially reducing rates to near 2%. However, there is a risk that if inflation resurges, at least some of the stimulus measures will be withdrawn by 2027.