Did the Fed Wait Too Long to Cut Rates?
They may have done more than cool the economy. They might have frozen it.
The August jobs report landed like a thud. Employers added only 22,000 jobs, far short of the 75,000 that were expected. The unemployment rate climbed to 4.3%, and earlier months were revised down—including June, which turned negative after the revisions. That marks the first monthly job loss since the pandemic recovery began.
This tells us two things: the labor market is slowing sharply, and the Federal Reserve may have kept its foot on the brake pedal too long.
Inflation Had Already Cooled
The Fed’s main job is to balance two goals: keep inflation under control and keep people employed. It fights inflation by raising interest rates, which makes borrowing more expensive and cools the economy. It supports jobs by lowering rates, which makes credit cheaper and encourages businesses to grow and hire.
Over the summer, inflation had come down to about 2.7% year-over-year, according to the Consumer Price Index. Gasoline and energy prices actually fell in July, which helped offset costs elsewhere. That gave the Fed some breathing room to start cutting rates.
At the same time, the Producer Price Index—which measures costs for businesses—spiked the most in three years. Higher tariffs played a big role in that. Many companies chose to swallow those costs rather than pass them to customers, but that left them with less money to expand or hire.
The Fed’s Missed Opportunity
The Fed held interest rates steady in the 4.25–4.50% range all spring and summer. With inflation cooling and business costs rising, that decision left companies in a bind. They were paying more at the wholesale level while credit stayed expensive.
When businesses face that squeeze, they don’t build new facilities, open new stores, or add more workers. They hold back. That’s exactly what we’re now seeing in the jobs numbers.
After August’s report, the bond market quickly priced in steeper rate cuts. Investors are now openly debating whether the Fed might need to go beyond a standard quarter-point cut at its September 16–17 meeting.
Why “Late” Matters
Keeping rates too high for too long can slow the economy more than necessary. The bond market agrees: interest rates on Treasury bonds have dropped below the Fed’s own policy rate, a sign that investors believe the central bank’s stance is now too restrictive.
Even mainstream voices like CNBC’s Sarah Eisen have raised the question of whether the Fed is simply too late. And with unemployment rising and job growth nearly stalling, it’s hard to argue otherwise.
Tariffs Complicate the Picture
It’s worth noting that tariffs add cost pressures that the Fed can’t control. But that makes the timing mistake even clearer. If trade policy is already weighing on businesses, leaving borrowing costs this high only doubles the strain.
In other words, the Fed couldn’t fix the tariffs—but it could have kept companies from being hit with both tariffs and tight credit at the same time.
What Happens Next
Unless we see a surprise in the next inflation report, the Fed will almost certainly cut rates this month. Whether it’s a modest cut or something larger, though, the fact remains: a cut now won’t undo the damage of waiting.
If the Fed had acted earlier, when inflation was cooling and the job market was softening but not yet stalling, we might not be staring at just 22,000 new jobs and a rising unemployment rate. Instead, the central bank is scrambling to catch up.
The August jobs report didn’t cause the problem—it revealed it. Inflation had cooled enough to justify a cut months ago, but the Fed stayed put. Now, the job market is paying the price. The conclusion is hard to miss: Jerome Powell and the Fed waited too long to cut rates.