For the past two years, inflation has been the Federal Reserve's primary concern. However, things may be about to change.

According to Bloomberg, the US central bank is poised to cut interest rates in September amid growing confidence in price stability. However, this move poses risks to the US labor market. Recent comments from Fed officials suggest that they have laid the groundwork for the upcoming rate cut. Market participants expect Fed Chairman Jerome Powell to clarify this decision following the July 30-31 meeting.

However, the decision is not yet final. Fed officials are still waiting for inflation to ease to 2% before lowering borrowing costs from their 20-year peak. According to analysts, Fed Chairman Jerome Powell and his colleagues are determined not to miss the chance of sticking a soft landing for the US economy, which is showing signs of losing momentum.

The Fed’s preferred inflation gauge has decreased to 2.6%, and the once-overheated labor market has returned to pre-pandemic levels. Officials still see the labor market as strong but acknowledge that it is nearing a turning point, with job openings steadily declining and unemployment gradually rising.

According to Fed Governor Christopher Waller, the Fed benefits from keeping the labor market at its current level, even though "there is more upside risk to unemployment than we have seen for a long time." 

The number of job openings for the unemployed, which reached a record high in the post-pandemic period, has slipped back to 2019 levels. The US unemployment rate has risen steadily in each of the past three months, coming in at 4.1% in June, while wage growth has moderated. The regulator is "very attentive to what is happening with the unemployment rate," Fed Governor Lisa Cook said. "The situation could change very quickly and we would be responsive," she added.

The rebalancing in the US labor market is accompanied by a slowdown in consumer spending as high prices and borrowing costs constrain Americans' purchasing power.

Recent inflation data, described by policymakers as ranging from "encouraging" to "very good," has reinforced the Fed's belief that prices are moving in the right direction. The US central bank emphasizes that more information is needed before cutting interest rates. Nevertheless, market participants believe that a September rate cut is a foregone conclusion. Analysts suggest the regulator will do what is best for the national economy.

According to the Fed, it is time to clearly understand the two crucial tasks: fighting inflation and maintaining the labor market. Policymakers stress the need to monitor their conditions to "get to a place where we have both sustainable price stability and full employment."