Fed Recalibrates as Jobs and Inflation Risks Align

The Federal Reserve’s Raphael Bostic, president of the Atlanta Fed, has underscored a pivotal shift in the central bank’s dual mandate, stating that risks to employment and inflation are now “roughly in balance.” This marks a departure from earlier emphasis on inflation as the primary concern, signaling a recalibration of monetary policy amid evolving economic dynamics Reuters, “Fed’s Bostic: Inflation still main concern, though single quarter-point cut likely,” (https://www.reuters.com/business/feds-bostic-inflation-still-main-concern-though-single-quarter-point-cut-likely-2025-09-03/)^[3]. Bostic’s remarks, made during a September 3 address, reflect broader debates within the FOMC as policymakers weigh the implications of a cooling labor market against persistent inflationary pressures.

Recent data highlights the Fed’s tightrope act. The unemployment rate rose to 4.3% in August, up from 4.1% in June, while payroll growth weakened to 22,000 jobs added in August. Core Consumer Price Index (CPI) inflation remained elevated at 3.1% year-over-year, above the Fed’s 2% target farmdoc daily, “Unpacking the Fed Rate Decision: What It Means for Inflation and Employment,” (https://farmdocdaily.illinois.edu/2025/09/unpacking-the-fed-rate-decision-what-it-means-for-inflation-and-employment.html)^[2]. These figures align with the FOMC’s September 2025 Summary of Economic Projections (SEP), which forecasts a gradual decline in unemployment to 4.2% by 2028, core inflation easing to 2.0%, and real GDP growth averaging 1.8% over the same period. The median federal funds rate is projected to stabilize at 3.1% by 2028, reflecting a cautious approach to policy normalization FRED Blog, “FOMC Summary of Economic Projections, September 2025,” (https://fredblog.stlouisfed.org/2025/09/fomc-summary-of-economic-projections-september-2025/)^[1].

Bostic emphasized that while inflation remains a critical focus, the labor market’s softening necessitates a measured response. He advocated for a 25 basis point rate cut later in 2025, aligning with market expectations of a 86.6% probability of another cut in October, as per the CME Group’s FedWatch tool farmdoc daily, “Unpacking the Fed Rate Decision: What It Means for Inflation and Employment,” (https://farmdocdaily.illinois.edu/2025/09/unpacking-the-fed-rate-decision-what-it-means-for-inflation-and-employment.html)^[2]. The Atlanta Fed’s research further complicates the narrative: while job openings have declined from pandemic peaks, the pace of hiring has slowed, with vacancy yields—measuring how quickly openings are filled—suggesting that labor markets may not be as strained as traditional metrics imply Atlanta Fed, “Heading into 2025 with Positive Economic Outlook, Mindful of Risks,” (https://www.atlantafed.org/about/atlantafed/executive-leadership-committee/bostic-raphael/message-from-the-president/archive/2024/12/02/heading-into-2025-with-positive-economic-outlook-mindful-of-risks)^[4]. This nuanced view underscores the challenge of interpreting labor market data in a high-interest-rate environment.

The Fed’s dual mandate balancing act is further complicated by external factors. Bostic noted that the full impact of trade policies, including higher import tariffs, could amplify inflationary pressures. However, he expressed confidence that housing-related inflation, a key driver of recent price volatility, would moderate as market-based rent growth aligns with official statistics. This optimism is grounded in stable inflation expectations and a cooling consumer sector, though risks from geopolitical tensions and regulatory changes remain Atlanta Fed, “Heading into 2025 with Positive Economic Outlook, Mindful of Risks,” (https://www.atlantafed.org/about/atlantafed/executive-leadership-committee/bostic-raphael/message-from-the-president/archive/2024/12/02/heading-into-2025-with-positive-economic-outlook-mindful-of-risks)^[4].

Looking ahead, Bostic stressed the importance of data-driven policymaking. The FOMC’s next meeting in September 2025 will be pivotal, with investors pricing in a near 90% chance of a rate cut. The Fed’s “dot plot” of policy rate projections, however, reveals a wide dispersion of views, indicating uncertainty about the appropriate path for monetary policy. Bostic, while not a voter this year, highlighted the need for flexibility, stating, “we should begin shifting monetary policy toward a stance that neither stimulates nor restrains economic activity” Atlanta Fed, “Heading into 2025 with Positive Economic Outlook, Mindful of Risks,” (https://www.atlantafed.org/about/atlantafed/executive-leadership-committee/bostic-raphael/message-from-the-president/archive/2024/12/02/heading-into-2025-with-positive-economic-outlook-mindful-of-risks)^[4].

The Fed’s balancing act between inflation and employment risks underscores the complexity of navigating a post-pandemic economy. As Bostic noted, the central bank must remain vigilant against both a sharper labor market downturn and a resurgence of inflation. With core CPI and unemployment metrics trending toward equilibrium, the September meeting will test the Fed’s ability to calibrate policy in a landscape where neither threat dominates unambiguously.