Weaker Jobs Data Bolsters 87% Odds of September Fed Rate Cut

Last week’s downward revisions to U.S. labor data have sharpened expectations of a Federal Reserve rate cut in September, as the job market shows signs of deteriorating faster than previously anticipated. The Labor Department reported that July payrolls grew by just 73,000, significantly below the forecasted 100,000, while May and June figures were revised down by a combined 258,000. The three-month average now stands at 35,000, raising concerns about the resilience of the labor market [1].

Investors are now pricing in an 87% probability of a rate cut at the Fed’s September meeting, a sharp increase from around 40% before the data was released. The revisions have intensified pressure on the Federal Open Market Committee (FOMC) to respond, particularly as the U.S. economy faces growing downside risks from the looming August 7 tariff deadline under President Trump’s trade agenda. The weakening labor market is a key component of the Fed’s dual mandate, and with inflation remaining within acceptable bounds, the case for easing has strengthened [2].

The resignation of FOMC member Adriana Kugler, a moderate voice on the committee, has also added momentum to the case for a dovish shift. Her departure creates an opening for President Trump to appoint a replacement who may support a more accommodative policy stance. This development could tip the balance in favor of a rate cut, particularly if the new appointee aligns more closely with the administration’s push for lower borrowing costs. Analysts speculate that the replacement could also serve as a potential successor to Fed Chair Jerome Powell [3].

Market reactions have been mixed, with global equities showing modest gains. S&P 500 futures rose 0.65% pre-market, while European indices like the FTSE 100 and DAX edged higher. In Asia, however, Japan’s Nikkei 225 fell 1.25%, reflecting ongoing uncertainty about trade relations with major partners. China’s CSI 300 and India’s Nifty 50 both posted small gains, at 0.4% and 0.65%, respectively. The broader market optimism is underscored by the surge in trading volumes in the CME’s 30 Day Federal Funds futures, which nearly tripled in the wake of the data release [4].

While many had expected a cut to be prompted by a stable inflation outlook, the current scenario is more reactive, driven by the negative momentum in the labor market. Deutsche Bank’s Jim Reid noted that Kugler’s resignation introduces a “dovish voter” into the mix, increasing the chance of a policy pivot. Macquarie has also revised its timeline for a cut in response to the July jobs report, though it emphasized that the decision will ultimately depend on incoming data about inflation and employment [5].

Despite the growing consensus for action, some analysts remain cautious. Oxford Economics’ Bernard Yaros pointed out that while the July data was a significant challenge, the underlying fundamentals—such as labor force flows and initial claims—suggest that the unemployment rate is unlikely to spike sharply in the near term. The Fed’s Powell has also maintained a balanced stance, emphasizing the importance of maintaining inflation near 2% without over-tightening monetary policy. In his recent press conference, he highlighted “downside risks” to employment multiple times, indicating that a shift in policy could be near [6].

As the Jackson Hole Symposium approaches in late August, investors are watching closely for any hints of a policy pivot. If the Fed signals a change in course, it could trigger a broader re-rating of risk assets and alter the trajectory of global markets. For now, the focus remains on incoming data and the political dynamics within the FOMC as the September meeting draws closer [7].

Source: [1]Labor department’s data upset may have sealed the deal for a Fed interest rate cut (https://fortune.com/2025/08/04/labor-department-data-fed-interest-rate-cut/)