Nick Timiraos: A sharp slowdown in job growth this summer likely seals the case for the Fed to cut interest rates by a quarter percentage point at its meeting in two weeks

Nick Timiraos: A sharp slowdown in job growth this summer likely seals the case for the Fed to cut interest rates by a quarter percentage point at its meeting in two weeks

The Federal Reserve is widely expected to cut interest rates by a quarter percentage point at its meeting in two weeks, following a sharp slowdown in job growth this summer. The U.S. added an average of about 35,000 jobs over three months ending in July, a significant cooldown from the roughly 196,000 jobs added on average over the previous three-month period [2]. This data has economists concerned about a possible recession and is likely to influence the Fed's decision.

Economists expect U.S. employers to have hired 75,000 workers in August, which would mark better hiring than recent months but come in well below the pace recorded earlier in the year. The latest jobs data will hold implications for a widely expected interest rate cut when top Federal Reserve policymakers gather in two weeks.

Fed Chair Jerome Powell recently said the central bank would "proceed carefully" but hinted at the possibility of an interest rate cut, appearing to indicate greater concern for flagging employment growth than rising prices. A weaker-than-expected jobs report on Friday could cement a potential interest rate cut, while a better-than-anticipated figure could nudge the central bank to wait a month to observe possible tariff-induced inflation.

Traders in derivative markets expect the Fed to cut rates at the next meeting on Sept. 16-17. For months, President Donald Trump has been urging the central bank to cut rates, sarcastically calling Powell “too late.” New York Fed President John Williams echoed this sentiment, stating he has not seen evidence that higher White House tariffs on imported goods have caused a spike in general inflation trends [3].

The Fed's dovish pivot is expected to lower capital costs for AI-driven companies, which are inherently capital-intensive. Broadcom (AVGO), for instance, benefits from AI growth and Fed rate-cut expectations, with AI semiconductor revenue surging 46% YoY to $4.4B in Q2 2025 [1]. Strategic partnerships like its OpenAI chip collaboration and $10B cloud client deal reinforce its AI infrastructure dominance and 60% gross margins.

Goldman Sachs targets $340/share for AVGO, citing $30B AI revenue potential by 2026 despite valuation risks in the sector's hype cycle. The AI revolution is no longer a speculative bet—it’s a seismic shift in the global economy, and investors who position themselves accordingly are poised to reap outsized rewards.

References:
[1] https://www.ainvest.com/news/strategic-case-positioning-ai-driven-tech-stocks-rate-cut-hopes-sector-momentum-reaccelerate-2509/
[2] https://abcnews.go.com/Business/bls-set-release-1st-jobs-report-trump-fired/story?id=125249122
[3] https://www.marketwatch.com/story/feds-williams-says-tariffs-are-not-amplifying-inflation-keeping-door-open-for-possible-rate-cut-in-september-86a44258