Job market struggles lead FedWatch to boost chances of rate cut in September
Signs of a weakening job market were evident Friday during the monthly release of the Bureau of Labor jobs report, which could lead the Federal Reserve to look at a rate cut in September.
There were 73,000 nonfarm payroll jobs added in July, lower than the Dow Jones estimate of 100,000. The bigger concern was the major revisions made to the May and June jobs totals.
June’s total of nonfarm payroll jobs was revised down by 133,000 to just 14,000 jobs. The May total was reduced by 125,000 to a total of just 19,000 jobs.
This means that, combined, there were 258,000 fewer jobs added than the original reports stated.
Joel Kan, Mortgage Bankers Association VP and chief economist, said the numbers showed businesses were taking a wait-and-see attitude about the current economic situation.
“Notably, goods-producing industries saw contraction for the third straight month,” Kan said. “Service industries involved in trade also saw declines in job growth, potentially a result of the uncertain tariff environment, as businesses either put their activity on pause or pulled back altogether.
“The downward revisions were larger than usual, totaling 258,000 fewer jobs estimated for the prior two months, which dropped the year-to-date average to 85,000 jobs, around half of the monthly average in 2024.”
Unemployment rose to 4.2%, with the number of long-term unemployed increasing 179,000 to 1.8 million people. Those people, who have been jobless for 27 weeks or more, account for 24.9% of all unemployed people.
“The unemployment rate also showed signs of deterioration, moving slightly higher over the month to 4.2%,” Kan said. “While labor force participation continued to decline as more workers dropped out of the workforce. Earlier this week, a separate survey showed that job openings, hiring, and voluntary quits were moving lower, consistent with this morning’s report.”
Kan said it could be a tenuous time in the economy over the next few months.
“The outlook for inflation and employment remains fragile,” he said. “MBA’s forecast is for the unemployment rate to increase to over 4.5% by the end of the year, peaking at around 4.8% in early 2026, as the economy continues to slow. We expect that this labor market softening will prompt the Fed to cut rates twice this year and once in 2026.”
Could lead to September cut
One of the major reasons the Federal Reserve has held steady was a job market that was moving along steadily. With these revised numbers and a lower-than-expected July total, the jobs market is showing signs of deterioration.
Following Federal Reserve chair Jerome Powell’s comments after the Fed rate decision this week, futures markets reduced the chances of both a September rate cut and any rate cut by the end of the year.
The chances of a September cut had fallen below 40%, with a 16% chance that the Fed would hold rates steady the rest of the year.
However, according to CME FedWatch, which tracks the probabilities of changes to the Fed rate based on the 30-Day Fed Funds futures prices, Friday’s jobs news improved the odds of a cut.
Immediately after the release of the jobs numbers, the odds of a 25-basis-point cut in September soared to 68.9%. The chance of no cut for the rest of the year fell to just 4.4%, with a 26.1% chance that the Fed would cut rates by 75 bps by the end of the year.
Trump’s message to Fed
President Trump, following the release of the dissents by governors Christopher J. Waller and Michelle W. Bowman, called for the Fed board to take control from Powell.
“Jerome “Too Late” Powell, a stubborn MORON, must substantially lower interest rates, NOW. IF HE CONTINUES TO REFUSE, THE BOARD SHOULD ASSUME CONTROL, AND DO WHAT EVERYONE KNOWS HAS TO BE DONE!” Trump posted this morning on his Truth Social account.
In a follow-up post, Trump said, “STRONG DISSENTS ON FED BOARD. IT WILL ONLY GET STRONGER! “TOO LATE!””
Bill Pulte, director of the FHFA, took to his X account to voice his displeasure with Powell.
“Jerome Powell, again, lies to the American people. This time saying that the Fed has nothing to do with Housing. The Fed has EVERYTHING to do with Housing.”
Jerome Powell, again, lies to the American people. This time saying that the Fed has nothing to do with Housing. The Fed has EVERYTHING to do with Housing.
— Pulte (@pulte) July 30, 2025
In Waller’s dissent, he stated that he thought the effects of tariffs would be a “one-off increase” and would not cause inflation. He also thought they should act before the jobs market began to falter.
“My final reason to favor a cut now is that while the labor market looks fine on the surface, once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased,” Waller said. “With underlying inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate.”
In her dissent, Bowman also argued for a 25-bps cut and expressed concerns about the jobs market.
“I think that we should start putting more weight on risks to our employment mandate,” she said. “Thus far, with the memories of pandemic worker shortages still fresh, firms have resisted reducing their work forces in response to the slowing economic conditions. And they have appeared to be more willing to reduce profit margins as they are less able to fully pass through higher costs and raise prices given the weakness in demand.
“If demand conditions do not improve, firms may have little option other than to begin to lay off workers, recognizing that it may not be as difficult to rehire given the shift in labor market conditions.”
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