Investors Back Rate Cuts as Jobs Data Signals Fed Action

The U.S. stock market opened with a significant upward trend on September 5, 2025, as investors responded to the latest employment data and central bank commentary. The nonfarm payroll report for August showed a sharp slowdown in job creation, with only 22,000 jobs added, far below the 75,000 expected by economists. This data, combined with rising unemployment and a stalled labor market, has reinforced expectations for a Federal Reserve rate cut in September. The probability of such a cut climbed above 99% in the wake of the report, signaling a growing consensus among investors that policymakers will act to support the economy [1].

The broader market sentiment appears to be supported by a modestly restrictive monetary policy stance and favorable financial conditions. Equity markets remain buoyant, with low credit spreads and elevated corporate profit margins contributing to investor optimism. Despite the weak payroll data, real GDP growth for the first half of 2025 stood at 1.9%, aligning with the Federal Open Market Committee’s (FOMC) median long-term growth projection. However, risks to the labor market remain skewed to the downside. Businesses have indicated that policy uncertainty, including the impact of tariffs, has dampened hiring intentions, and recent data show a higher share of longer-term unemployed individuals and downward revisions to previous payroll estimates [2].

Alberto Musalem, President of the St. Louis Fed, highlighted the evolving economic outlook during a speech at the Peterson Institute for International Economics. He noted that while growth has accelerated in the second quarter, driven by consumer spending and business investment, the labor market is showing signs of cooling. Musalem projected that the pace of hiring will remain near full employment, with risks leaning toward further weakening. He also emphasized that inflation, currently running at approximately 3% year to date, is expected to gradually return to the Fed’s 2% target by late 2026. However, he warned that the pass-through of tariffs to consumer prices could persist longer than expected, particularly if second-round effects on non-imported goods and services emerge [2].

The market’s positive reaction was also influenced by developments in global markets. European equities rose on the same day, with the Stoxx 600 index gaining 0.3% as investors digested the U.S. jobs report. The weaker-than-expected data bolstered expectations for a rate cut, with the U.S. dollar declining and the euro and British pound rising by approximately 0.6% against the greenback. This shift in currency valuations further reinforced the perception that central banks are becoming more accommodative in the face of softening economic conditions [1].

In tandem with these macroeconomic trends, individual stocks showed varied performance. Shares of Danish energy firm Orsted initially surged after securing shareholder approval for a $9.4 billion rights issue, although the stock later retreated to a small loss. The move comes amid legal challenges to offshore wind projects in the U.S., highlighting the political headwinds facing renewable energy firms. Orsted also revised its full-year earnings guidance downward due to lower-than-expected wind speeds at its offshore assets. Analysts described the announcement as a setback ahead of the anticipated capital raise [1].

The broader economic environment suggests that while growth remains below long-run potential, the Federal Reserve is poised to act in response to mounting downside risks. Musalem’s speech outlined a forward-looking approach to monetary policy, emphasizing the need to balance employment and inflation objectives. Given the current inflation level and the projected path of economic activity, the Fed may soon consider rate cuts to support the labor market while managing inflationary pressures. Investors will continue to closely monitor upcoming employment data and central bank decisions for further signals [2].

Source:

[1] European stock markets Friday, Sept 5: U.S. jobs report, Orsted update (https://www.cnbc.com/2025/09/05/european-stock-markets-friday-sept-5-us-jobs-report-orsted-update.html)

[2] Economic Conditions, Risks and Monetary Policy (https://www.stlouisfed.org/from-the-president/remarks/2025/economic-conditions-risks-monetary-policy-remarks-peterson-institute)

[3] US Markets, World Markets, and Stock Quotes (https://www.cnn.com/markets)