The U.S. labor market is adding to the turmoil too! Inflation has fallen, so why is the Fed still afraid to cut rates?

Many people think that as long as U.S. inflation falls, the Fed can comfortably cut rates. But in reality, there is another important variable that is often overlooked: the labor market.
If employment is too strong, it may mean wage growth and consumer demand remain robust, making inflationary pressures difficult to eliminate completely; if employment is too weak, it may mean the economy is losing momentum.
This puts the Fed in a dilemma: if the economy is too hot, it doesn’t dare cut rates; if it’s too cold, it worries about a recession.
It’s just like turning on the air conditioner in winter: turn the temperature up and it feels too hot; turn it down and it feels too cold.
U.S. employment data will be especially worth watching going forward. If nonfarm payrolls remain resilient and wage growth does not cool significantly, the Fed may continue to monitor the situation cautiously. If employment weakens markedly while inflation continues to ease, the case for rate cuts will grow stronger.
This shift also matters a lot for U.S. stocks. Moderate economic growth benefits corporate earnings, while gradually falling interest rates could improve growth stock valuations.
But if the economy slows markedly, corporate profits may come under pressure, and the benefits of rate cuts may not be enough to offset the economic downturn.
Therefore, investors should not focus only on CPI; they should also watch nonfarm payrolls, the unemployment rate, and wage growth.
The truly ideal scenario is for inflation to come down without employment collapsing.
That’s the economic script the Fed most wants to see, and the combination the market most hopes for. #美国10月CPI即将公布 $MU $SPCX