Traders Bet on Big Fed Cut as Jobs Growth Stalls and Inflation Lingers

The probability of a 50 basis point rate cut by the U.S. Federal Reserve in September has risen to 9.9%, according to trader activity and market expectations ahead of the upcoming Non-Farm Payrolls (NFP) data release. This heightened possibility comes as traders closely monitor key inflation indicators in the lead-up to the Fed’s policy meeting, with recent economic data providing mixed signals on the central bank’s dual mandate of price stability and maximum employment [1].

The Bureau of Labor Statistics (BLS) released the August 2025 Employment Situation Summary on September 5, showing minimal changes in total nonfarm payroll employment, with an increase of only 22,000 jobs. The unemployment rate remained stable at 4.3 percent, and the employment-population ratio stayed at 59.6 percent. While the health care sector added 31,000 positions, this was partially offset by job losses in the federal government and mining, quarrying, and oil and gas extraction sectors. These data underscore the subdued momentum in the labor market, with employment growth showing little movement since April [2].

Inflation expectations are playing a central role in shaping the Fed’s potential policy path. Economists surveyed by Dow Jones anticipate the all-items inflation rate to rise to 2.9%, while core inflation is expected to remain at 3.1%. A significant upward surprise in the Consumer Price Index (CPI) could complicate the Fed’s decision-making, as it would weigh against the argument for a larger rate cut [1]. However, analysts like Panigirtzoglou (Slok) suggest that the Fed may begin to place less emphasis on current inflation figures and focus more on future inflation expectations. This shift could provide a stronger case for accommodative policy despite persistent inflation, reflecting the central bank’s evolving approach to balancing its dual mandate [1].

Average hourly earnings for private-sector employees increased by 0.3 percent in August, reaching $36.53, with a year-over-year gain of 3.7 percent. While wage growth remains above pre-pandemic trends, it has yet to reach levels that would trigger aggressive tightening measures. The average workweek for all employees on private nonfarm payrolls held steady at 34.2 hours for the third consecutive month, with no significant shifts observed in major industries such as manufacturing, retail, or construction [2].

Traders and analysts continue to evaluate whether the incoming data will justify a 50 basis point cut, especially as inflation remains above the Fed’s 2% target. However, the lack of significant employment growth or wage pressures may encourage a more cautious approach from policymakers. The Fed’s upcoming meeting will be closely watched for signs of a broader easing bias, particularly if inflation expectations begin to moderate [1].

The NFP report is scheduled for release on October 3, 2025, while a preliminary benchmark revision to the establishment survey data will be published on September 9, 2025. These updates could influence the final assessment of the labor market and inform the Fed’s policy decisions ahead of the September meeting [2].

Source:

[1] Traders see a chance the Fed cuts by a half-point (https://www.cnbc.com/2025/09/08/traders-see-a-chance-the-fed-cuts-by-a-half-point.html)

[2] Employment Situation Summary - 2025 M08 Results (https://www.bls.gov/news.release/empsit.nr0.htm)