Fed's challenge is if labor weakness is demand related or more structural, says KPMG's Diane Swonk

Economic Outlook - The Federal Reserve's probability of two successive interest rate cuts in October and December has significantly decreased to 41% from nearly 100% prior to the last meeting, influenced by recent Fed communications and economic concerns [2][3][4] - Inflation remains a critical issue, with current rates around 3%, exceeding the Fed's target of 2%, leading to concerns about the Fed's credibility in managing inflation [4][7][8] Inflation Drivers - The rise in inflation is attributed not only to tariffs but also to broader economic factors, including labor market shortages in sectors like elder care and daycare, which are contributing to affordability issues [6][9] - The dispersion of price indices in the Consumer Price Index (CPI) indicates that more goods and services are experiencing price increases, suggesting persistent inflationary pressures [5][6] Labor Market Dynamics - Despite a seemingly strong economy, the labor market data indicates softness, with job growth concentrated in specific sectors like AI and infrastructure, raising concerns about overall labor market participation [7][10] - Current immigration policies may lead to stagnation or even a decline in labor force growth, with estimates suggesting that a payroll growth rate as low as 30,000 to 50,000 jobs per month may be necessary to maintain stable unemployment rates [13][14]