This is now the first Fed jobs data, not the first Fed inflation data: Evercore By Investing.com

According to Evercore ISI analysts, the Federal Reserve’s focus has shifted from inflation data to labor force data, fundamentally changing its approach to monetary policy.

The investment firm said in a note on Monday that despite market turmoil and inflation expectations, the Fed is now prioritizing the labor market, with upcoming US CPI inflation data playing a secondary role in its decision-making.

Evercore ISI explains that while the Fed is still watching inflation, particularly the July CPI, it is “less data point dependent, more forward-looking.”

They point out that even if inflation comes in stronger than expected, the Fed is likely to remain focused on preventing the labor market from tightening.

The note states, “Labor data is now more important to the Fed and markets than inflation data.”

The shift is said to reflect the Fed’s broader strategy of mitigating downside risks to employment rather than overreacting to near-term inflation swings.

Analysts note that this “dual risk management” approach has been adopted as the Fed acknowledges progress on inflation and the low likelihood that the labor market will lead to higher inflation.

Future inflation data will influence the Fed’s freedom to act, but Evercore ISI believes that “a soft print with core CPI rounded to 0.2 for a good composition would be unambiguously risky,” giving the Fed more room to cut rates preventively.

However, even if the inflation footprint is less favorable, analysts expect the Fed to lean toward managing employment risks, with a high likelihood of interest rate cuts in September.

Ultimately, Evercore ISI concludes, “This is now the first Fed with labor data, not the first Fed with inflation data,” with market reactions and Fed policy increasingly driven by labor market trends than by inflation figures.