Patrick Semansky/AP Photo
The August jobs report, released this morning by the Labor Department, was soft again. The economy added just 142,000 jobs last month, continuing a weakening trend. This was a shade better than July, but far less than the hot performance earlier in 2023 and 2024.
Other indicators, such as reduced job openings, more people working part-time who want full-time jobs, and elevated claims for unemployment, reinforce the picture. Once again, the Labor Department revised earlier estimated job growth downward, this time cutting the figure for job growth in June and July by 86,000 jobs. Drill deeper and you see a softening job market for college grads as well as those without degrees.
All of this, of course, means that a long-overdue rate cut is virtually certain when the Fed holds its next policy-setting meeting September 17-18. Fed Chair Jay Powell, speaking at the Fed’s recent Jackson Hole conference, has already said that there will be a rate cut. The big question is whether it will be a half-point cut, to compensate for the Fed’s previous excessive tightening, or just a stingy quarter-point cut.
I spoke today with Barney Frank, the former chair of the House Financial Services Committee, who played a key role in getting the Dodd-Frank reform bill through Congress after the 2008 financial collapse. We discussed Fed Chair Powell’s obsession with an arbitrary 2 percent annual inflation target, which Powell kept invoking as the Fed refused to cut rates even though the big bout of COVID supply chain inflation was over and the economy was being punished by the Fed’s tight money policy.
The 2 percent inflation target was created by former Fed Chair Ben Bernanke. Frank reminded me that Bernanke had never intended the target to be rigid in all circumstances. The Fed is required by law to balance full employment with price stability goals.
Frank actually pinned down Bernanke and got a commitment from him that the 2 percent target was not intended to compromise the Fed’s dual mandate. Frank told me, “Ben Bernanke made me a commitment in 2012 that setting an inflation target of 2 percent would not result in an imbalance in the weight given the two goals.”
In fact, Frank added, citing Bernanke’s own memoir, 21st Century Monetary Policy, even the arch-hawk, former Fed Chair Alan Greenspan, refused to set an inflation target because it would compromise policy flexibility. “Greenspan had it right,” Frank concluded.
It is appalling that Bernanke and Greenspan should now be role models for Jay Powell, but that’s how far we’ve fallen. Let’s have that half-point rate cut and liberate the economy’s potential.
