Revised labor data fuels expectations for multiple cuts
With U.S. job growth faltering and economic indicators flashing red, markets are now fully pricing in interest rate cuts at each of the Federal Reserve’s three remaining meetings in 2025. The shift follows Tuesday’s Bureau of Labor Statistics (BLS) report, which revealed that the economy added 911,000 fewer jobs than previously estimated in the 12 months leading up to March. Additional downward revisions suggest the real figure could be closer to 1.2 million jobs lost over the past 16 months.
Citigroup economist Andrew Hollenhorst argued that had the Fed had access to these figures in real time, interest rates would likely be lower already. He said the data “could justify” a 50-basis-point cut when the Federal Open Market Committee (FOMC) meets on September 17, although he expects the committee to agree on a more moderate 25-basis-point reduction, with signals that further cuts could follow in October and December.
Traders now forecast three consecutive rate reductions
According to the CME FedWatch tool, which analyzes fed funds futures, traders are now betting on rate cuts at all three remaining Fed meetings this year. The odds for a quarter-point cut next week stand at 100%, with a slim possibility of a half-point move. This is a stark shift from just a week ago, when markets priced in only modest chances for a full rate-cutting cycle in 2025.
“The U.S. economy barely has any jobs right now and it’s been that way for a long time,” said Heather Long, chief economist at Navy Federal Credit Union and former Fed reporter. She argued that the Fed must act decisively and that the White House should move quickly to finalize a trade deal with China to restore business confidence.
White House and Fed face growing pressure
The White House has seized on the revised data to amplify pressure on the Fed. “Much like the BLS has failed the American people, so has Jerome ‘Too Late’ Powell — who has officially run out of excuses and must cut the rates now,” said press secretary Karoline Leavitt.
Meanwhile, Fed officials remain cautious. While they closely monitor market expectations, they are not bound by them. Some officials may prefer to wait for clearer signals before making aggressive moves, especially as President Donald Trump’s tariffs continue to cloud the economic outlook.
Goldman Sachs has pushed back on the scope of the BLS revisions, estimating the actual job growth shortfall at about 550,000 using its own high-frequency models. The firm acknowledged that labor market conditions have softened, but contends the BLS data may exaggerate the weakness.
Worsening sentiment and sluggish hiring raise alarm
Additional signs of trouble are piling up. Nonfarm payrolls rose by just 22,000 in August, a sharp slowdown. Meanwhile, a New York Fed survey showed record-low confidence among workers that they could find another job if needed. Other sentiment surveys have also revealed increased anxiety among job seekers and employers alike.
As policymakers prepare for the September 17 meeting, the deteriorating job market, weak business investment, and uncertain trade environment are likely to weigh heavily on their decision. With markets, analysts, and the White House now aligned in demanding action, the Fed’s next move is under intense scrutiny.
