After the Federal Open market Committee met last week, Fed Chair Jerome Powell seemed to suggest that although interest rates we left unchanged at that meeting, a September interest rate cut was likely. With recent weak jobs numbers, Wall Street is predicting nearly a 100% probability that rates will be cut in September. Will they be cut?

The Consumer Price Index (CPI) number for July will be released on August 14. It looks like that number could show a slight increase from the prior month, raising the one-year CPI. The August CPI number will be released in mid-September. While it is too early to forecast that number, it too could rise.

If that is the case, then the Fed will not cut interest rates at their September meeting. That means the earliest interest can fall in November.

Virtually all Americans want to see interest rates fall. Business needs lower rates to grow their businesses and increase their hiring. Consumers need lower rates so they can afford to buy big ticket items like houses and cars. And households need lower rates, so their credit cards are not so expensive.

After two very costly mistakes, the Fed does not want to make another mistake when dealing with inflation.

Their first mistake was to keep interest rates near zero and to rapidly expand the money supply during all of 2021 and the first half of 2022. They did this while the annual inflation number went from 1.4% in December 2020 to 9.1% in June 2022.

Their second mistake was to end the interest rate increases in September 2023. That ending kept the Fed Funds rate in the 5.25 to 5.50 range. Had they raised interest rates one or two more times before the end of 2023, inflation would not have increased, as it did, in early 2024.

This coming September the Fed will face a quandary. Persistent inflation should mean they keep interest rates constant. But the economy is beginning to slow down, and the unemployment rate has increased to 4.3%, so if the Fed holds rates constant the economy may weaken further, and unemployment will increase even more.

In the first quarter of this year, annual GDP growth was a meager 1.4%. The first estimate of GDP growth for the second quarter is a very healthy 2.8%. Yet with a rising unemployment rate, estimates for the third quarter GDP growth have fallen.

The consensus view is that GDP growth will fall to less than 2% in the third quarter. Some economists are forecasting a GDP growth rate in the 1% range. That growth level will raise the unemployment rate to 4.5% or higher.

According to the Bureau of Labor Statistics, currently there are 7.2 million Americans unemployed. Last July there were 5.9 million. The 1.3 million increase concerns the Fed, meaning they would like to cut interest rates to stop that number from increasing.

But if they cut rates too soon, that will be a costly mistake in their battle to reduce inflation, which has been a problem for more than three years. Inflation has reduced the standard of living for nearly all Americans, especially the middle and lower classes.

At this point reducing inflation should continue to be their top priority even if it results in a further increase in the unemployment rate. After all an increase in the unemployment of 2% means about 2.5 million Americans will lose their jobs. But a further increase in the inflation rate negatively impacts nearly all the 132 million households in the US.

By the time the Federal Open Market Committee meets again in September, we could have seen an increase in the inflation rate and an increase in the unemployment rate. The Fed has a tough decision to make. Based on history the Fed will likely err on the side of keeping interest rates higher to continue the fight against inflation.

That is of course unless their decision is influenced by politics. In that case anything could happen.

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Michael Busler is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.