Cleveland Fed's Hammack: 'Disappointing' Jobs Report

It was a disappointing report, to be sure. But when I look at the data, we don't try not to make too much of any one individual report. And so we look at the confluence of data. We look at the longer term picture. What we have is a labor market that is showing signs that we should be watching carefully. Having the headline numbers come down makes sense to me, given what we've seen happening on the immigration side and the headline number on unemployment, which is the most reliable indicator we have, is still within that 4.1 to 4.3 range that it's been out for the past year or so. It looks like a market that a healthy labor market that's still well in balance, but with some disappointing signs that we should watch very carefully.

I feel confident with the decision that we made earlier this week. We have to look at the whole picture of the data. When I step back and look at where we are, I see a labor market that is largely in balance. Again, today's report is just one report. We'll watch it carefully. We'll look to see if the dynamism in the labor market is picking up, because that's been something that we haven't really seen. If you have a job, you're able to keep your job, but if you don't have a job, it's harder to find one. But in aggregate, we're still seeing unemployment in that four two range where it came out today. But it's been four one, two, four, three for the entire year. We're seeing pressure on the inflation side of our mandate. That's where our mess has been bigger and it's been lasting for longer. We haven't hit on inflation in four and a half years. And when I'm out talking to people across the district, whether it's Wheeling, Toledo, Cincinnati, what I hear from people is that the pain of inflation is really biting. They're making very difficult choices. They're trading down from buying ground beef to buying hot dogs. The $400 emergency fund that they have, they're not able to stretch as far as they used to. And so we have to balance those two sides of our mandates when we think about setting correct policy. And we have to look at if we're missing by how much and for how long do we expect those misses to last. And right now, we're missing by much more on the inflation side than we're missing on the employment side. That was basically sort of the message that Chairman Powell gave on his Wednesday news conference. But we're looking at backward data always, of course, looking forward to get back to what you were saying about when you're talking to people, what are companies telling you about their plans?

So what we've heard from businesses consistently is that uncertainty has been high for all of this year. They've had a difficult time making investments, executing on the plans that they had going into this year because they just didn't know where the economy is going to go. They didn't know how tariffs were going to impact their businesses. What we've heard consistently is that they fought really long and hard to get their labor force together to train employees and make sure that they were really able to help produce and that they're loath to let them go. But that can't last forever if demand ticks down. And so they're watching carefully to see if they're able to continue seeing that demand, if they need to pass on price increases to keep their margins where they need to be. And so I would anticipate that we could see some weakening. It's something we've been talking about and watching for that we could see some weakening on the labor side of the picture. And if we see that, it would be something that we might want to respond to. Again, having to balance that against the inflation side, where we continue to really mess on that side of the mandate.

Yeah, I mean, my expectation, my forecast is that we will see the inflation numbers tick up. The $30 billion a month in tariff revenues is being paid by someone. It looks like it's more being paid by importers and consumers at this point. I think importers have borne a lot of that to this date and it's likely that that will start to get pushed. We're hearing from the businesses we talked to that they can't absorb those costs anymore and they will start pushing that out into prices to consumers. If you look at some of our forecast, if you look at my forecast, I do expect that we're going to see inflation continue to tick up into the end of this year. And I expect that we'll see the labor market weaken into the end of this year. And again, how we need to manage that really depends on by how much and for how long we're going to miss on each side.

I don't usually disclose my dot, but, you know, part of my view has been that we see an economy that's operating right around full employment. We've been reasonably close, not all the way where we need to be on the inflation side of our mandate and the growth numbers continue to do well. So to me, I think that the economy is operating right around a neutral long term rate. We're a little bit restrictive. I think I said modestly restrictive, but I don't think we have much further to go to get to a neutral Fed funds rate.