Fed's Cook: unemployment rate still a good indicator of slack

Fed's Cook: unemployment rate still a good indicator of slack

The Federal Reserve's Chair, Jerome Powell, has reiterated that the unemployment rate remains a reliable indicator of labor market slack. This assertion comes amidst recent fluctuations in the unemployment rate, which has been a subject of interest for investors and financial professionals alike.

In July 2025, the U.S. unemployment rate rose slightly to 4.2% from 4.1% in June, according to data from the Bureau of Labor Statistics (BLS) [1]. This increase, although marginal, is notable as it marks a slight deviation from the steady 4.0%–4.2% band that the rate has maintained since May 2024. The number of unemployed individuals rose by 221,000 to 7.236 million, while employment fell by 260,000 to 163.106 million. The labor force participation rate dipped to 62.2%, its lowest level since November 2022, while the employment-population ratio declined to 59.6%, the weakest since December 2021. The broader U-6 unemployment rate, which includes discouraged workers and those working part-time for economic reasons, rose to 7.9% from 7.7% in June.

Powell's emphasis on the unemployment rate as an indicator of slack comes at a time when the labor market is showing signs of both strength and vulnerability. While the overall unemployment rate has been relatively stable, sector-specific data reveals varying trends. For instance, the transportation sector's unemployment rate dropped to 4.3% in July 2025, down 1.4 percentage points from July 2024, according to the BLS [2]. However, this improvement is still above the pre-pandemic level of 4.2%.

The Fed's focus on the unemployment rate aligns with its mandate to promote maximum employment. Despite recent fluctuations, the rate remains within a narrow band, suggesting a stable labor market. However, the broader U-6 rate's rise indicates that there is still some slack in the labor market, particularly among those who are marginally attached to the workforce or working part-time due to economic reasons.

The recent tariffs imposed by the U.S. government may also impact the labor market. Companies are adapting their supply chains to navigate the new tariffs, which could lead to shifts in employment patterns. While the immediate impact of the tariffs on employment is uncertain, the Fed's focus on the unemployment rate provides a useful benchmark for assessing the labor market's health.

In conclusion, the Federal Reserve's Chair has reaffirmed the importance of the unemployment rate as an indicator of labor market slack. While recent data shows fluctuations in the unemployment rate, the overall trend suggests a stable labor market. As the U.S. economy continues to navigate the challenges posed by the tariffs, the unemployment rate will remain a critical metric for investors and financial professionals to monitor.

References:
[1] https://tradingeconomics.com/united-states/unemployment-rate
[2] https://www.dcvelocity.com/transportation/unemployment-rate-for-u-s-transportation-sector-drops-to-4-3-in-july