The Fed's rate cut rationale

The job market is worse than it looks. Tariffs' effects on inflation are probably a one-time bump.The big picture: Those two sentences, in a nutshell, explain why the Fed has resumed its interest rate cuts — even as inflation has ticked up, the unemployment rate remains low, and the stock market is at new highs.That assessment appears to be broadly shared among the many top policymakers making the speeches-and-interview rounds over the last 48 hours, even as they differ on just how far this spurt of rate-cutting ought to go.State of play: Newly appointed governor Stephen Miran has gotten a lot of attention for his dissent and public appearances arguing for much steeper interest rate cuts. He laid out his rationale in a speech Monday.But the consensus among his colleagues is considerably simpler than Miran's esoteric reading of how immigration, tax, deregulatory and other policies are affecting the neutral rate of interest.The mainstream view on the Federal Open Market Committee is based on risk management — that the possibility of a further downshift in the job market appears to be the more pressing concern than the chance that inflation will spiral higher.Driving the news: Vice chair for supervision Michelle Bowman delivered a sharp speech Tuesday morning that lays out the case."I am concerned about the weakening in labor market conditions and softer economic growth," Bowman told the Kentucky Bankers Association. "I am also more confident that, as trade policy has become more certain, tariffs will have only a small and short-lived effect on inflation going forward."She said that it is time to act "decisively and proactively to address decreasing labor market dynamism and emerging signs of fragility," and that weak job growth readings "show that we are at serious risk of already being behind the curve."Of note: Even some of those who are more cautious about how aggressively to cut rates share the same basic assessment."I supported the rate decision because I perceived the risk of labor market weakening had increased sufficiently to warrant a policy adjustment," St. Louis Fed president Alberto Musalem said Monday at the Brookings Institution.However, in contrast to Bowman's call for proactive action, Musalem said that "I believe there is limited room for easing further without policy becoming overly accommodative."Yes, but: Some other reserve bank presidents are even more disinclined toward rate cuts, given ongoing inflation pressures."It worries me that if we remove that restriction on the economy, things could start overheating again," Cleveland Fed president Beth Hammack said Monday in a moderated discussion.Between the lines: What does that all mean for interest rates in the months ahead?It means anything that gives officials peace of mind on the underlying solidity of the job market would weaken their confidence that the economy needs cheaper money, while surging inflation alone may not be enough to alter the path.For now, Fed policy is all about the job market.