Just days ago, Federal Reserve Chair Jerome Powell confidently declared the labor market “solid” while defending the Fed’s decision to hold interest rates steady. Now, that judgment is under fire — and the central bank may be facing one of its most embarrassing misreads in recent memory.

On Wednesday, the Fed opted not to cut interest rates, continuing its cautious approach as it waits to assess the full impact of President Donald Trump’s tariffs on inflation. Powell told reporters that the central bank still had the “luxury” of time, citing robust employment as justification.

Then came Friday’s jobs report — and with it, a wave of regret.

Job Market Cracks Wide Open

The Labor Department announced that only 73,000 jobs were added in July — a dramatic shortfall from economists’ expectations and well below the level needed to keep pace with population growth. Worse, job gains for the prior two months were revised sharply downward, signaling a broader slowdown.

The unemployment rate ticked up to 4.2%, and more alarming still, average job growth over the last three months is now at its weakest since the 2009 recession — excluding the pandemic downturn.

Jamie Cox, managing partner at Harris Financial Group, didn’t mince words: “Powell is going to regret holding rates steady this week.”

A Rare Public Split Inside the Fed

Not everyone inside the Fed agreed with Powell’s decision. For the first time since 1993, multiple Fed governors publicly dissented.

Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman both voted against the decision, citing clear evidence of labor market fragility.

“The labor market has become less dynamic and shows increasing signs of fragility,” Bowman said in a statement. She noted that only a few industries have driven the year’s modest job growth — a dangerous imbalance that remained visible in July’s report.

Waller echoed her concerns, further highlighting the internal rift brewing inside the Fed — a body that typically prides itself on consensus.

Tariffs vs. Jobs

At the heart of the Fed’s indecision is the growing tension between battling inflation and protecting jobs — especially in an election year with Trump aggressively reshaping trade policy through sweeping tariffs.

Powell and his allies fear that cutting rates too soon could fuel inflation, especially if tariffs begin to raise consumer prices. But critics say the real threat now is stagnation and job loss.

“The Fed is dancing on a tightrope while the wind is picking up,” said one Wall Street economist. “They waited too long — again.”

Powell’s Defense: It’s Just One Report

Not all Fed leaders are ready to panic. Cleveland Fed President Beth Hammack told Bloomberg that while the jobs report was “disappointing,” it was not enough to undermine the central bank’s broader outlook.

“I feel confident with the decision we made earlier this week,” she said. “We try not to make too much out of any one individual report.”

That logic mirrors the Fed’s actions in late 2024, when a brief unemployment spike led to a swift rate cut — and was later followed by a surge of 323,000 jobs in December. Some officials argue the current slump could be similarly short-lived.

Still, the Optics Are Bad

The Fed declined CNN’s request for comment, but the silence may speak volumes.

With inflation still below the Fed’s 2% target and unemployment rising, critics are accusing Powell of clinging to a narrative that no longer holds. Worse, his public remarks just days before the jobs report have made him a political target — with both progressives and fiscal conservatives questioning his judgment.

In a week meant to project calm and control, the Fed now finds itself scrambling to explain why it stayed the course as warning signs flashed.

Did the Fed just royally screw up?

The next jobs report — and perhaps history — will have the final say.