Our economic outlook for the United States

The subdued job creation observed in recent labor market reports has shifted monetary policy sentiment toward a renewed focus on the employment side of the Federal Reserve’s dual mandate of ensuring price stability and promoting maximum sustainable employment. We expect mandate tensions to be a continuing factor as inflation accelerates amid tariff-related pass-through to consumer prices.

The number of monthly job creations required to keep the unemployment rate steady, or the breakeven rate, has shifted downward from roughly 150,000 a year ago toward a level we anticipate being near 50,000 by year-end. Domestic demographics and a slowdown in immigration continue to be headwinds to labor force growth. We expect the unemployment rate to soften to 4.5% by year-end. More broadly in the economy, we continue to see growth slowing but still maintaining healthy momentum.

In this environment, markets are virtually unanimous in pricing in at least a 25-basis-point interest rate cut at the Fed’s September 17 meeting. (A basis point is one-hundredth of a percentage point.) However, we expect the Fed will remain cautious. We don’t expect a preset course of sequential rate cuts to be communicated, given a great deal of uncertainty and a desire to be data-dependent. Overall, we see the economy tracking in-line with our expectations of a softening labor market, with 1.4% GDP growth and 3.1% core inflation by year-end.