After three interest rate cuts at the end of 2024 amid weakening labor markets, the Federal Reserve resumed cutting the federal funds rate on Sept. 17, this time to 4 percent to 4.25 percent. The federal funds rate had peaked at 5.25 percent to 5.5 percent from August 2023 to September 2024, albeit belatedly, in response to the recent high of consumer inflation that peaked at 9.1 percent in June 2022.
In the middle of the 2024 presidential election, President Joe Biden got a scary unemployment report for the month of July, jumping to then 4.3 percent — where it is today — which was a surprise and rattled markets that saw a temporary spike in volatility.
The Fed responded with an interest rate cut right before the election at its Sept. 18, 2024 meeting. Two more cuts would come in November and December, respectively, before pausing through much of 2025.
At 4.3 percent, the unemployment rate is pretty low on an historical basis, but still 0.9 percent above its prior low of 3.4 percent, now accounting for 1.63 million more unemployed since January 2023 to its current level of 7.38 million. That’s usually what happens as inflation cools, now at 2.9 percent after a slight, expected pop in August as the rest of President Donald Trump’s tariffs took effect.
In addition, the Bureau of Labor Statistics downwardly revised jobs data from March 2024 to March 2025 by almost 1 million out of the establishment survey of employers, showing the economy and labor markets were much weaker than thought during the election year, leading President Donald Trump to fire the agency’s head.
That weakness also agrees with that first quarter Gross Domestic Product report that showed the economy contracted an inflation-adjusted basis before rebounding in the second quarter.
Recall, majorities of Americans said the economy was in recession during the 2024 election as households reeled from the inflation outpacing incomes. It was one of the principal reasons the Biden administration was ousted.
There is definitely economic pain being felt still from the inflation. It’s the hangover.
This is why the Fed is again leaning towards the full employment side of its dual mandate, albeit belatedly, as it usually does towards the end of the economic cycle, post-peak inflation as consumer credit gets maxed out, demand cools and the layoffs begin.
For President Trump and his administration, it’s a reminder that the pain is real, and it is still being felt. Fortunately, with interest rates now falling and as inflation continues cooling, relief is on the way — but it could still get a bit bumpy. These kinds of episodes usually end with recessions, and if so, as usual, it was years in the making.
Robert Romano is the Executive Director at Americans for Limited Government Foundation.
