A single day can drastically alter the outlook for monetary policy.
On Thursday, combined 103,000. This sudden instability in the job market complicates the Fed’s dual mandate of maximizing employment while maintaining price stability.
The Federal Reserve typically lowers interest rates when the labor market experiences a sharp slowdown, as cheaper borrowing costs stimulate the economy by encouraging consumer spending and business investment. Simultaneously, the central bank is working to curb inflation, which remains elevated.
Persistent inflation is generally addressed by the Fed through rate hikes, as higher borrowing costs restrict spending, thereby cooling economic demand and slowing price increases.
“The chances of holding just went up pretty significantly today,” Indeed Hiring Lab senior economist Cory Stahle told CBS News about next month’s Fed meeting. “What we see in the jobs report maybe says that the Federal Reserve, at the very least, might have to think about the timing of a potential rate hike, if not think about some rate cuts on the table as well, if we continue to see this type of deterioration in the labor market.”
On Friday, the probability that the Fed will maintain its benchmark rate at the current level next month climbed to 56%, up from 45% the previous day.
Fed faces a quandary
In June, inflation reached an annual rate of 3.5%, which is higher than the Fed’s preference but a decrease from the 4.2% recorded in May. Fed Chair <a s 2% annual target.
However, economists note that forcing inflation back to 2% through interest rate hikes becomes much more difficult if officials simultaneously need to support a softening labor market with rate cuts.
“The U.S. labor market is stalling again, and that is going to make the Federal Reserve’s job harder and life for job seekers rough,” said Heather Long, chief economist at the Navy Federal Credit Union, in an email. “The Federal Reserve has to stay focused on inflation, but the labor market is vulnerable to any downturn.”
The Consumer Price Index report for July, scheduled for release on Aug. 12, is projected to show that inflation moderated slightly last month to an annual rate of 3.4%.
Americans are contending not only with a sluggish job market but also with inflation that is outpacing wage growth, Long noted. This disparity continues a long-term trend where the majority of wage gains over the past seven years have been effectively neutralized by inflation, according to a CBS News analysis of Census data.
The analysis found that the typical full-time worker earned $1,250 per week during the first half of 2026. While that represents a $342 increase from the year preceding the pandemic—a 38% raise—prices in the U.S. have risen at a nearly identical pace. Consumer costs have climbed 30% over that same seven-year period, absorbing roughly 80% of the average worker’s pay increase.
“Most Americans are getting squeezed by high inflation,” Long said. “Many Americans will have to tighten their belts this fall.”
What’s behind the hiring slump?
Employers are delaying hiring decisions due to economic uncertainty driven by high energy prices stemming from the Iran war, increased U.S. tariffs, and the Trump administration’s immigration crackdown
“There’s just been a lot of policy uncertainty, geopolitical uncertainty, that is weighing on the minds of businesses and households,” he told CBS News. “Wrestling with this uncertainty makes it hard for businesses to commit to a long-term hire.”
Some economists continue to forecast rate hikes later this year, arguing that the need to control inflation will remain the Fed’s primary priority over supporting the labor market.
“We agree that the July jobs report was a bit dovish on net,” Bank of America economists said Friday. “But we are sticking with our call that the Fed will hike by [0.75 percentage points] this year, starting in September. The Fed is likely to remain more focused on inflation than labor.”
