US economic alarm bells ring! IMF warns of rising inflation risks, is a Fed rate cut a foregone conclusion?
2025-09-12 09:08:29
The US economy has long been renowned for its resilience. However, a recent report from the International Monetary Fund (IMF) has sounded the alarm on this "economic myth." On Thursday (September 11th), the IMF clearly stated that the US economy is showing signs of stress, with weakening domestic demand and slowing job growth. Furthermore, the Trump administration's high tariffs are fueling rising inflation risks. Meanwhile, a recent survey indicates that the Federal Reserve is poised for its first interest rate cut of the year, with markets widely anticipating further monetary easing. What does all this mean? Is the US economy at a turning point? This article will delve into this complex situation, focusing on the IMF's warnings, the underlying reality of the employment data, and the prospects for Fed rate cuts.
Both domestic demand and employment slowed down
IMF Spokesperson Julie Kozack admitted at a regular briefing on September 11th that the strong resilience of the US economy of recent years is gradually fading. Domestic demand continues to weaken, suppressing consumer confidence and spending power, while the job market has failed to maintain its previously strong momentum. Kozack noted that while businesses front-loaded imports in anticipation of the Trump administration's tariffs at the beginning of the year, this "front-loaded" imports did not mask the underlying economic slowdown. The trend of weakening domestic demand is now becoming increasingly apparent, and the momentum for economic growth is weakening.
Tariff policy increases inflation risk
More worryingly, the Trump administration's high tariffs on imported goods are sowing the seeds of inflation. Kozack emphasized that while US inflation is still slowly approaching the Fed's 2% target, tariffs are undoubtedly adding upward pressure on prices. The rising costs of imported goods could gradually be passed on to consumers, pushing up prices and threatening the cost of living for ordinary households. The IMF therefore recommends that the Federal Reserve exercise extreme caution in formulating monetary policy, addressing inflationary risks while avoiding excessive economic disruptions.
The Fed's room to cut interest rates is limited but necessary
Faced with the complex situation of economic slowdown and coexisting inflation risks, the IMF believes the Federal Reserve still has room to cut interest rates, but the pace must be steady. Kozack stated that the Fed should closely monitor the latest economic data and prudently adjust its policy direction to balance the dual goals of economic growth and price stability. This "tightrope walk" of policy choices not only tests the Fed's wisdom but also adds uncertainty to the future direction of the US economy.
Behind the sharp downward revision of employment data
The U.S. Department of Labor recently released shocking data: actual U.S. job growth in the 12 months ending March 2025 was 911,000 fewer than previously estimated. This significant downward revision, far exceeding the historical average, suggests the labor market is weakening far more than expected. Kozack analyzed that this data revision could be due to adjustments in statistical methodology, errors in the survey process, or even a hiring slowdown caused by businesses' lack of confidence in the economic outlook. This phenomenon suggests that even before the Trump administration's high-profile tariffs, the momentum of the U.S. job market had already stalled.
The controversy over data transparency
Kozack remained cautious in response to external doubts about the credibility of US employment data. She did not directly comment on the data's reliability, but instead emphasized the IMF's consistent advocacy for member countries to provide accurate, timely, and reliable data to enhance the credibility of their economic management. She also stated that the IMF will further explore the reasons behind the downward revision of employment data during its regular review of the US economy in November. While this statement was mild, it also hinted at the IMF's concern about the quality of US economic data.
September rate cut is almost certain
A Reuters poll on September 11th indicated that the Federal Reserve will cut its key interest rate by 25 basis points on September 17th, bringing the federal funds rate range to 4.00%-4.25%. This would be the first rate cut since 2025. Of the 107 economists surveyed, 105 agreed with this forecast, indicating that market expectations for a rate cut are virtually certain. Morgan Stanley Chief U.S. Economist Michael Gapen noted that the continued slowdown in labor market demand over the past four months has prompted the Federal Reserve to prioritize supporting the job market rather than focusing excessively on current inflationary pressures.
The debate over the pace and magnitude of interest rate cuts
While a 25 basis point rate cut in September is the mainstream expectation, a minority of analysts still predict the Fed may implement a more aggressive 50 basis point cut. The survey also showed that 60% of economists expect the Fed to have cut interest rates by a cumulative 50 basis points by the end of 2025, while 37% believe the cuts could reach 75 basis points, a significant increase from the August survey. This shift in market expectations reflects economists' growing concerns about the US economic outlook, particularly the weak job market and the risk of inflation caused by tariffs.
Outlook for inflation and unemployment
The survey also revealed economists' complex assessments of future inflation and unemployment trends. Over 60% of respondents believe the likelihood of a sharp rise in inflation or a simultaneous surge in both inflation and unemployment is increasing over the next year. US inflation is projected to remain above the Federal Reserve's 2% target until at least 2027, while unemployment is expected to hover around its current level of 4.3% for several years. This potential risk of "high inflation and high unemployment" poses additional challenges to the Federal Reserve's monetary policy.
The Reuters survey also touched on a sensitive topic: Federal Reserve Chairman Jerome Powell's term ends in May 2026, and concerns about his policy independence persist. However, 76% of economists believe the Fed's independence will not be significantly weakened during Powell's tenure. This assessment may instill some confidence in the market, but it also serves as a reminder that the Fed will face a test of both political and economic pressures in its decision-making over the next year or so.
The IMF's warning, downward revisions to employment data, and the Federal Reserve's impending interest rate cuts paint a complex picture for the US economy. Slowing domestic demand, stagnant job growth, and inflation risks stemming from high tariffs have fueled market uncertainty about the future of the US economy. While the Fed's rate cut offers a glimmer of hope for easing, its cautious pace and limited scope suggest that resolving the current predicament will be challenging. How the Fed strikes a balance between supporting economic growth and controlling inflation will be a key focus of global attention in the coming months. For ordinary citizens, potential price increases and uncertainties in the job market may directly impact their lives. At this critical juncture, whether the US economy can regain momentum remains to be seen.
Overall, expectations of a Fed rate cut and rising inflation risks are providing upward support for gold prices. In the short term, gold prices are likely to rise due to the implementation of the rate cut and safe-haven demand. However, liquidity pressures caused by an economic slowdown and the impact of US dollar fluctuations may lead to short-term fluctuations in gold prices. In the medium to long term, if inflation remains high and economic uncertainty intensifies, gold's appeal as a safe-haven asset will further increase, and gold prices are expected to maintain their upward trend. Investors should closely monitor the outcome of the Fed's September meeting and subsequent economic data to determine further gold price trends.
IMF warns: US economic resilience weakens, inflationary pressure poses a hidden crisis
Both domestic demand and employment slowed down
IMF Spokesperson Julie Kozack admitted at a regular briefing on September 11th that the strong resilience of the US economy of recent years is gradually fading. Domestic demand continues to weaken, suppressing consumer confidence and spending power, while the job market has failed to maintain its previously strong momentum. Kozack noted that while businesses front-loaded imports in anticipation of the Trump administration's tariffs at the beginning of the year, this "front-loaded" imports did not mask the underlying economic slowdown. The trend of weakening domestic demand is now becoming increasingly apparent, and the momentum for economic growth is weakening.
Tariff policy increases inflation risk
More worryingly, the Trump administration's high tariffs on imported goods are sowing the seeds of inflation. Kozack emphasized that while US inflation is still slowly approaching the Fed's 2% target, tariffs are undoubtedly adding upward pressure on prices. The rising costs of imported goods could gradually be passed on to consumers, pushing up prices and threatening the cost of living for ordinary households. The IMF therefore recommends that the Federal Reserve exercise extreme caution in formulating monetary policy, addressing inflationary risks while avoiding excessive economic disruptions.
The Fed's room to cut interest rates is limited but necessary
Faced with the complex situation of economic slowdown and coexisting inflation risks, the IMF believes the Federal Reserve still has room to cut interest rates, but the pace must be steady. Kozack stated that the Fed should closely monitor the latest economic data and prudently adjust its policy direction to balance the dual goals of economic growth and price stability. This "tightrope walk" of policy choices not only tests the Fed's wisdom but also adds uncertainty to the future direction of the US economy.
The truth about employment data: the downward revision exceeded expectations, and stagnant growth exposed concerns
Behind the sharp downward revision of employment data
The U.S. Department of Labor recently released shocking data: actual U.S. job growth in the 12 months ending March 2025 was 911,000 fewer than previously estimated. This significant downward revision, far exceeding the historical average, suggests the labor market is weakening far more than expected. Kozack analyzed that this data revision could be due to adjustments in statistical methodology, errors in the survey process, or even a hiring slowdown caused by businesses' lack of confidence in the economic outlook. This phenomenon suggests that even before the Trump administration's high-profile tariffs, the momentum of the U.S. job market had already stalled.
The controversy over data transparency
Kozack remained cautious in response to external doubts about the credibility of US employment data. She did not directly comment on the data's reliability, but instead emphasized the IMF's consistent advocacy for member countries to provide accurate, timely, and reliable data to enhance the credibility of their economic management. She also stated that the IMF will further explore the reasons behind the downward revision of employment data during its regular review of the US economy in November. While this statement was mild, it also hinted at the IMF's concern about the quality of US economic data.
The Fed is poised to cut interest rates, with markets anticipating another rate cut by the end of the year.
September rate cut is almost certain
A Reuters poll on September 11th indicated that the Federal Reserve will cut its key interest rate by 25 basis points on September 17th, bringing the federal funds rate range to 4.00%-4.25%. This would be the first rate cut since 2025. Of the 107 economists surveyed, 105 agreed with this forecast, indicating that market expectations for a rate cut are virtually certain. Morgan Stanley Chief U.S. Economist Michael Gapen noted that the continued slowdown in labor market demand over the past four months has prompted the Federal Reserve to prioritize supporting the job market rather than focusing excessively on current inflationary pressures.
The debate over the pace and magnitude of interest rate cuts
While a 25 basis point rate cut in September is the mainstream expectation, a minority of analysts still predict the Fed may implement a more aggressive 50 basis point cut. The survey also showed that 60% of economists expect the Fed to have cut interest rates by a cumulative 50 basis points by the end of 2025, while 37% believe the cuts could reach 75 basis points, a significant increase from the August survey. This shift in market expectations reflects economists' growing concerns about the US economic outlook, particularly the weak job market and the risk of inflation caused by tariffs.
Outlook for inflation and unemployment
The survey also revealed economists' complex assessments of future inflation and unemployment trends. Over 60% of respondents believe the likelihood of a sharp rise in inflation or a simultaneous surge in both inflation and unemployment is increasing over the next year. US inflation is projected to remain above the Federal Reserve's 2% target until at least 2027, while unemployment is expected to hover around its current level of 4.3% for several years. This potential risk of "high inflation and high unemployment" poses additional challenges to the Federal Reserve's monetary policy.
The Test of Federal Reserve Independence and Powell's Term
The Reuters survey also touched on a sensitive topic: Federal Reserve Chairman Jerome Powell's term ends in May 2026, and concerns about his policy independence persist. However, 76% of economists believe the Fed's independence will not be significantly weakened during Powell's tenure. This assessment may instill some confidence in the market, but it also serves as a reminder that the Fed will face a test of both political and economic pressures in its decision-making over the next year or so.
Summary: The U.S. economy is at a crossroads
The IMF's warning, downward revisions to employment data, and the Federal Reserve's impending interest rate cuts paint a complex picture for the US economy. Slowing domestic demand, stagnant job growth, and inflation risks stemming from high tariffs have fueled market uncertainty about the future of the US economy. While the Fed's rate cut offers a glimmer of hope for easing, its cautious pace and limited scope suggest that resolving the current predicament will be challenging. How the Fed strikes a balance between supporting economic growth and controlling inflation will be a key focus of global attention in the coming months. For ordinary citizens, potential price increases and uncertainties in the job market may directly impact their lives. At this critical juncture, whether the US economy can regain momentum remains to be seen.
Overall, expectations of a Fed rate cut and rising inflation risks are providing upward support for gold prices. In the short term, gold prices are likely to rise due to the implementation of the rate cut and safe-haven demand. However, liquidity pressures caused by an economic slowdown and the impact of US dollar fluctuations may lead to short-term fluctuations in gold prices. In the medium to long term, if inflation remains high and economic uncertainty intensifies, gold's appeal as a safe-haven asset will further increase, and gold prices are expected to maintain their upward trend. Investors should closely monitor the outcome of the Fed's September meeting and subsequent economic data to determine further gold price trends.
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