A dismal August jobs report from the U.S. Bureau of Labor Statistics (BLS) could be the final nudge needed to trigger a federal interest rate cut this week.
That’s the feeling among many experts, following the BLS report released earlier this month, which showed the U.S. only added 22,000 jobs in August.
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The 22,000 jobs added stand in stark comparison to a year ago, when the U.S. added 142,000 jobs in August 2024. Compounding the bad news, the report also showed revisions of July and June’s jobs numbers.
While July actually gained 6,000 jobs in the revision, jumping to 79,000 jobs created, June was revised down from +14,000 to -13,000 jobs — a loss of 27,000 jobs that represents the first time the economy has lost jobs since the pandemic four years ago.
In addition, the unemployment rate rose to 4.3%, its highest since October 2021, when it reached 4.6%.
All of this to say, if the lagging employment numbers of the last few months already had the Federal Reserve teetering on the brink of an interest rate cut on Sept. 17, the August numbers may have sealed the deal. But how big will the cuts be?
Taking all bets
The current federal interest rate sits at 4.25% to 4.5%. Following the August jobs numbers, CME FedWatch is now predicting a 96% probability of a 25 basis point rate cut [1]. And ING’s chief international economist James Knightly told Reuters [2] that even though inflation is a concern, “the Fed’s focus is jobs.”
He agreed with the CME probabilities, adding that, “On the face of it, this hints at a pick-up in the pace of layoffs in an environment of already weak hiring and will reaffirm expectations of a 25-bp (basis point) Fed rate cut.”
CBS MoneyWatch, meanwhile, notes that some experts are even suggesting a 0.5% cut — “double the typical rate cut in a bid to keep the job market on track” — while others predict yet another rate cut could materialize later this year [3].
“We continue to believe the Fed will ease into the cutting cycle here with one rather than two,” Global X ETFs’s head of investment strategy Scott Helfstein told CBS, “but there is some latitude here.”
Reuters added that the probability of another rate cut in January sits at 50%.
Bloomberg, meanwhile, conducted a survey of economists [4] that revealed that, though the majority predicted two rate cuts this year, more than 40% suggested three possible rate cuts. They added that investors are “leaning more heavily” toward three rate cuts, while “almost 90% of respondents also expect Fed officials will change their post-meeting statement to emphasize greater attention to labor-market risks.”
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Trump tests Powell
The road toward possible rate cuts this year has proven a complicated balancing act — especially for Fed Chair Jerome Powell.
“In the near term, risks to inflation are tilted to the upside, and risks to employment to the downside — a challenging situation,” Powell noted during a speech in Jackson Hole last month.
“When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate.”
And that’s, seemingly, the easy part. The real threat comes from an increasingly impatient president, who fired former BLS commissioner Erika McEntarfer after claiming July’s sub-par jobs numbers were “rigged,” and who has tried (and so far failed) to fire Federal Reserve Governor Lisa Cook.
Amid those feuds, President Donald Trump — who previously called for the Federal Reserve to slash the interest rate all the way down to 1% — continues to target the Fed chair.
The president dubbed Jerome “Too Late” Powell for not cutting rates sooner, calling him “a total disaster, who doesn’t have a clue.”
He previously sparred with Powell over a renovation of the Federal Reserve’s Washington headquarters in July and, a month earlier, called him “an average mentally person … low IQ for what he does” at a NATO press conference.
And Monday, with a Fed rate cut seemingly days away, Trump took to social media to demand Powell “cut interest rates, now, and bigger than he had in mind.”
To that end, the Bloomberg survey showed that almost three quarters of respondents admitted concern “that monetary policy decisions in the next year will become influenced by political loyalties.”
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[1]. CME Group. “Fedwatch”
[2]. Reuters. “Fed seen on track for rate cuts as job worries eclipse inflation fears”
[3]. CBS Moneywatch. “The August jobs report has economists alarmed. Here are their 3 top takeaways”
[4]. Bloomberg. “Economists See Fed Rate Cut Next Week, at Least One More in 2025”
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