I’m thrilled to sit down with Donald Gainsborough, a political savant and leader in policy and legislation, who heads Government Curated. With his deep expertise in economic policy and governmental decision-making, Donald offers unparalleled insights into the complex dynamics shaping the U.S. economy today. In our conversation, we dive into the Federal Reserve’s upcoming policy decisions, the implications of a cooling labor market, the pressures of rising inflation, and the delicate balance the Fed must strike amidst these competing forces. Join us as we unpack these critical issues and explore what they mean for the future.
What factors do you see as the primary drivers behind the Federal Reserve’s potential decision to cut interest rates at their upcoming meeting?
I believe the Fed is under significant pressure due to a combination of economic indicators. The cooling labor market, with jobless claims hitting a four-year high and substantial downward revisions in job growth numbers, is signaling a slowdown that could warrant a rate cut to stimulate activity. At the same time, tariff-related inflationary pressures are complicating the picture, pushing up costs for consumers. The Fed has maintained its independence from political noise, but the economic data—particularly the labor market weakness—seems to be a key driver pushing them toward a cut to maintain stability and prevent a deeper downturn.
How much weight should we place on the 94.5 percent probability of a quarter-point rate cut as reported by tools like CME FedWatch?
That high probability reflects a strong market consensus, and it’s not something to dismiss lightly. Markets are pricing in expectations based on a wealth of data and Fed communications, so a 94.5 percent likelihood suggests that investors and analysts see a cut as almost inevitable. It’s a signal that the Fed’s messaging has been consistent about responding to economic softening, especially in the labor market. However, probabilities aren’t guarantees—unexpected data or geopolitical shocks could still shift the outcome, though it would take something significant to derail this expectation.
How effective do you think the Fed’s current benchmark rate range of 4.25 to 4.50 percent has been in stabilizing the economy up to this point?
The current rate range has provided the Fed with a degree of flexibility, which they’ve needed given the economic crosswinds. It’s helped temper inflation to some extent by keeping borrowing costs elevated, discouraging excessive spending. However, it hasn’t been a perfect solution—while it’s curbed some price pressures, it’s also contributed to slower hiring and reduced consumer confidence. I’d say it’s been moderately effective in maintaining a balance, but the recent data suggests it may no longer be the right stance as labor market risks grow.
Turning to the labor market, how worried should we be about jobless claims reaching a four-year high of 263,000 last week?
That number is certainly a red flag. Hitting a four-year high in jobless claims indicates that layoffs are accelerating, and it’s a clear sign of distress in certain sectors. It’s particularly concerning when paired with other data like slower hiring and declining job openings. This level of claims suggests that the labor market’s resilience is eroding, which could spiral into reduced consumer spending and broader economic weakness if not addressed. It’s a strong argument for the Fed to act sooner rather than later to support job growth.
What are your thoughts on the massive downward revision of job gains by 911,000 between April 2024 and March 2025?
That revision is staggering and deeply troubling. It essentially means we’ve overestimated the strength of the labor market for nearly a year, painting a much rosier picture than reality. A correction of that magnitude—911,000 fewer jobs—undermines confidence in the recovery narrative and suggests structural weaknesses that weren’t previously accounted for. It’s a wake-up call for policymakers and the Fed, highlighting that the economy may be more fragile than we thought, and it adds urgency to their decision-making process.
With August job growth at a mere 22,000 and unemployment climbing to 4.3 percent, how much pressure does this put on the Fed to lower rates?
These numbers put immense pressure on the Fed. Job growth of just 22,000 is anemic, far below what’s needed to keep pace with population growth, and the uptick in unemployment to 4.3 percent shows the labor market is losing steam. Historically, the Fed has responded to such trends by easing monetary policy to encourage hiring and investment. I think these figures, combined with other weak indicators, make a compelling case for a rate cut as a preemptive measure to prevent further deterioration.
How do you interpret the decline in job openings and the fact that there are now more unemployed workers than available positions?
This shift is a critical turning point. For the first time in years, having more unemployed workers than job openings signals a reversal from the tight labor market we’ve seen post-pandemic. It means employers are pulling back on hiring, likely due to economic uncertainty and cost pressures from tariffs and other factors. This imbalance can lead to prolonged unemployment for many workers, dampening wage growth and consumer spending. It’s a stark indicator that the economy is cooling faster than anticipated, and it’s something the Fed can’t ignore.
Shifting to inflation, how concerning is the 0.4 percent jump in consumer prices in August, the sharpest in seven months?
That 0.4 percent jump is quite alarming, especially as it outpaced expectations. It’s the steepest monthly increase in over half a year, which suggests that inflationary pressures are not only persisting but intensifying in certain areas. While it’s not a return to the peak inflation rates we’ve seen, it indicates that price stability is still elusive. For the Fed, this complicates their strategy—cutting rates to support employment could risk fueling further inflation, so this uptick is a significant concern.
What kind of impact do you think specific price hikes, like coffee up 3.6 percent and beef up 2.7 percent, are having on everyday Americans?
These specific hikes hit hard because they’re on staple goods that people buy regularly. A 3.6 percent increase in coffee or 2.7 percent in beef might sound small in isolation, but when you’re seeing these jumps across multiple essentials, it squeezes household budgets. For many Americans, especially those on fixed or lower incomes, these price increases mean cutting back on other expenses or seeking cheaper alternatives. It also fuels frustration, as these are visible, tangible costs that people feel directly at the grocery store, eroding confidence in the economy.
With companies like Campbell’s and Procter & Gamble warning of upcoming price increases due to tariffs, how do you foresee this affecting consumer behavior?
These warnings are a harbinger of tougher times for consumers. When major companies signal price hikes, it often leads to a ripple effect across the market. Consumers, already cautious due to labor market uncertainty, are likely to become even more frugal. We might see a shift toward discount brands, bulk buying, or simply reducing consumption of non-essential goods. This kind of behavior can slow economic growth further, as reduced spending impacts businesses’ bottom lines, creating a feedback loop of caution and restraint.
Why do you think some businesses are currently absorbing tariff costs, and how sustainable is that approach?
Many businesses are absorbing these costs to maintain competitive pricing and protect market share, especially in a climate where consumers are already stretched thin. Passing on higher costs immediately risks losing customers to competitors or cheaper alternatives. However, this isn’t sustainable long-term. Margins can only be squeezed so much before profitability suffers, and as we’ve seen with recent warnings from major companies, the tipping point is approaching. I suspect within the next few quarters, more of these costs will inevitably be passed on to consumers, further driving inflation.
How challenging is it for the Fed to navigate a weakening labor market alongside rising inflationary pressures?
It’s an incredibly tough spot for the Fed. Typically, a weakening labor market calls for lower rates to spur growth and hiring, while rising inflation demands higher rates to cool demand and stabilize prices. Facing both at once creates a dilemma where any move risks exacerbating one problem while addressing the other. The Fed has to weigh the immediate pain of job losses against the longer-term threat of entrenched inflation. It’s a balancing act that requires precise judgment, and frankly, there’s no perfect solution—every decision carries trade-offs.
What is your forecast for the Fed’s policy direction in the coming months given these competing economic forces?
I expect the Fed to proceed with a cautious rate cut in the near term, likely at the upcoming meeting, to address the labor market’s softening. However, they’ll probably keep future cuts modest and data-dependent, given the inflationary pressures from tariffs and rising consumer prices. Their messaging will be critical—they’ll need to signal readiness to pivot if inflation accelerates further. Over the next few months, I foresee a delicate, step-by-step approach, with the Fed trying to support employment without losing control of price stability. It’s going to be a tightrope walk, and a lot will depend on incoming data on jobs and inflation.
