Weak Payrolls Push Fed Rate Cut Odds to 86% in September 2025

The likelihood of a U.S. Federal Reserve rate cut in September 2025 has surged following the release of unexpectedly weak July 2025 nonfarm payroll data. The report revealed a prolonged slowdown in hiring, with job creation figures falling below previous estimates over the spring. As a result, the probability of a rate cut now stands at over 80%, with CME Group Fed futures reflecting an 86% chance of a 25-basis-point cut, driven by the disappointing employment figures [3]. Analysts have speculated that the Fed may move swiftly to address the newly apparent weakness in the labor market [5]. The data has intensified speculation around a potential 50-basis-point cut at the September meeting, according to comments from Rick Rieder, BlackRock’s Chief Investment Officer, who linked the decision to soft labor conditions [1].

The immediate impact of the weak payroll report was evident across financial markets. Bond markets reversed earlier positioning for a rate hike, as investors shifted to a “pain trade” that became profitable amid the rate cut expectations [2]. Equity markets, on the other hand, experienced significant sell-offs, with the Dow Jones Industrial Average plunging 542 points and the S&P 500 also declining. This market reaction was compounded by the announcement of escalating tariff policies, which further elevated investor anxiety [3]. The rise in unemployment to 4.2% has added to the pressure on the Fed to adjust its stance, with some analysts suggesting a dovish pivot could be necessary to support economic growth [4].

The potential shift in Fed policy has also sparked discussions around dollar weakness and carry trade opportunities, as investors reposition portfolios in anticipation of an easier monetary policy environment [4]. The situation is further complicated by inflationary pressures from tariffs and global trade tensions, placing the Fed in a difficult balancing act between supporting the labor market and managing inflation risks [7]. President Donald Trump has criticized the Fed for its current policy stance, arguing for lower rates, and his rhetoric has contributed to the heightened expectations for a September rate cut [1].

Cryptocurrency markets have also responded to the evolving Fed outlook. Bitcoin initially dipped following the weak jobs data, reflecting investor caution despite expectations of rate cuts. While the broader financial markets reacted more drastically, the muted movement in crypto suggests a more measured approach from investors [8]. Historically, digital assets tend to benefit from increased liquidity and monetary easing, and the current conditions mirror those seen before past rate cut cycles [1]. This has led to discussions about how cryptocurrencies and DeFi tokens might experience renewed activity in the aftermath of a Fed rate cut [1].

As the September meeting approaches, the focus remains on whether the Fed will act decisively or opt for a more cautious approach. The weak labor data has clearly shifted market expectations, and investors are pricing in an aggressive response from the Federal Open Market Committee. Final outcomes, however, will depend on additional economic indicators and further signals from central bank officials [1].

Sources:

[1] https://www.msn.com/en-us/money/markets/shockingly-bad-jobs-report-reveals-a-monthslong-stall-and-may-trigger-fed-rate-cuts-soon-powell-is-going-to-regret-holding-rates-steady/ar-AA1JJhis

[2] https://www.bloomberg.com/news/articles/2025-08-03/bond-market-s-pain-trade-turns-to-payoff-on-jobs-shock

[3] https://www.tradingnews.com/news/weak-labor-data-and-escalating-tariffs-trigger-broad-stock-market-rout

[4] https://www.ainvest.com/news/fed-dovish-pivot-investors-position-rate-cut-driven-dollar-weakness-q3-2025-2508/

[5] https://www.aol.com/did-fed-just-royally-screw-080042223.html

[7] https://www.ainvest.com/news/navigating-perfect-storm-tariffs-weak-payrolls-fed-dilemma-2508/

[8] https://x.com/CoinEdition/status/19516079183****2000