Hassett Says Fed Should Hold or Cut After 23,000 Job Losses

White House economic adviser Kevin Hassett said he would hold rates steady or cut them if he sat on the Federal Reserve, wading into the central bank's policy debate after July payrolls turned negative.

White House economic adviser Kevin Hassett said he would hold rates steady or cut them if he sat on the Federal Reserve, after July payrolls fell by 23,000.

"If I were at the Fed now, I would choose to keep rates unchanged or cut them," Hassett said, a rare public intervention from the White House into the central bank's rate-setting deliberations.

The July jobs report showed the US economy shed 23,000 positions, against the 83,000 gain economists had forecast in a Dow Jones Newswires and Wall Street Journal poll. The Bureau of Labor Statistics also revised down job growth for the prior two months by 103,000, revealing a weaker labor market than previously reported. The unemployment rate eased to 4.1 percent, a decline driven by falling labor supply as the participation rate dropped to its lowest level since the height of pandemic-related closures. Average hourly earnings rose 3.2 percent year-on-year, trailing inflation and leaving workers with less income in real terms.

The comments land as the Fed weighs its next move after holding rates steady last month, when three regional presidents dissented in favor of a hike. "The soft labor market report should lower market expectations for a Fed rate hike in the coming months, but the inflation reports will be the key focus for Fed officials," said Kathy Bostjancic, chief economist at Nationwide. The central bank meets next month.

Labor Market Cools as Payrolls Turn Negative

The July contraction marked the first negative print after job growth peaked in March and declined over the following three months. Retail trade lost 19,000 jobs, with employment falling in warehouse retailers such as Costco and Sam's Club and general merchandise stores. The financial activities sector continued its slide, having shed 121,000 jobs from its May 2025 peak. Health care, which has buoyed the labor market as more Americans age, added 22,000 jobs — a slower pace than its average gain over the past year. The losses were concentrated in sectors sensitive to consumer spending, pointing to softer demand as households contend with real wage declines.

Fed Faces Sticky Inflation and Softening Jobs

Hassett's comments add a political dimension to the Fed's dilemma. Inflation has run above the central bank's 2 percent target for five years, and policymakers have indicated they were preparing for a rate hike later this year. "This morning's report is a game changer in the sense that all of the recent focus has been on inflation and this report highlights the risks that are embedded in the labor market as well," said Chris Zaccarelli of Northlight Asset Management.

"The worst combination for the Fed is if inflation remains sticky while the labor market weakens," said Diane Swonk, chief economist at KPMG. "That would not take rate hikes off the table; it would make them more painful."

Hassett dismissed Friday's data as based on a survey that is "very, very noisy," but the downward revisions and falling participation rate suggest the labor market is cooling even as price pressures persist. The Fed has missed its 2 percent inflation target for five straight years, showing the difficulty of its dual mandate. If inflation stays elevated while payrolls weaken, the Fed faces a choice between defending its inflation mandate and supporting maximum employment — a tension that could keep rate-sensitive sectors such as technology, real estate and financials volatile into the September meeting. A hold or cut would support equity valuations and lift risk appetite, while a hike would deepen the squeeze on households already facing real wage declines.

This article is for informational purposes only and does not constitute investment advice.