Rate-cut expectations surged this morning following the weak labor market signals from the payrolls report with 2025 now pricing in 3 full cuts...
Source: Bloomberg
As we predicted, the chance of a 50bps cut in September are also rising, but for now it appears 25bps in each of Sept, Oct, and Dec is the most likely outcome...
Source: Bloomberg
As The Wall Street Journal's fed Whisperer, Nick Timiraos, pointed out in a brief post on X:
"Weak hiring this summer will make it easier for Fed policymakers to agree on a 25 bps cut at their meeting in two weeks but further muddies the debate over the pace of cuts after that."
Consensus across Wall Street appears to be that Powell will cut in September, and continue to cut at each meeting this year at least:
Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities:
“The job market has weakened and the transition between public to private sector job growth will require lower rates. The Fed will begin to lower rates this month and we expect a string of more cuts along the way. The forward curve has us down to neutral by the end of 2026 but that timeline could very well be sooner.”
BI chief US interest-rate strategist Ira Jersey has a first take:
“The bull steepening is no surprise given the overall payroll report. Negative revisions continue and hourly earnings growing more slowly point to the potential for a slowing in non-debt-fueled consumption growth in the next few quarters.”
“Bull steepening should be maintained for the present, and we still target 10-year yields below 4% by year end, with 10-year yields having about a 0.5 beta to 2-year yields.”
Matt Maley, chief market strategist at Miller Tabak:
“[Bad news is good news for stocks] is the initial response. However, history tells us that if lower yields are signaling a significant slowdown in growth, it’s negative for stocks. So, we’re going to see how the market acts once the cash market opens.”
Audrey Childe-Freeman, Bloomberg Intelligence’s chief G-10 FX strategist:
“Dollar bears have just been given another lift, with the August employment report which will not only validate the September 25-bp Fed rate-cut talks, but is also likely to entertain speculation of more aggressive Fed easing going forward.”
“This confirms our US yield-driven euro-dollar bullish case as we consider 4Q, with a break of $1.1750 now looming. Note that the euro context isn’t rosy at all — see French politics in particular — but for now, we expect this pair to be mainly driven by US considerations.”
A jumbo rate cut?
Brian Jacobsen, chief economist at Annex Wealth Management, goes there in his reaction to the data.
"A 50 basis-point cut is back on the table. Everyone was probably more keyed-in on the revisions than the headline number. With revisions, there was nearly net zero job creation. Aggregate weekly hours were unchanged in August with broad declines across industries. Anything trade or tariff related saw declines in aggregate weekly hours worked.
The diffusion index for private sector employment has been below 50, so it’s a top-heavy economy. You need some better breadth to remove the economic anxiety out there."
BlackRock’s Jeff Rosenberg on the payrolls print on Bloomberg TV:
“What it really puts on the table is a Fed that gets back in motion for cutting rates, and if the economy is not falling off a cliff, that’s a pretty good combination for risk assets.”
Neil Dutta at Renaissance Macro says the numbers are a comprehensive defeat of the policy hawks and growth bulls.
“To borrow from Powell, now is the time to unleash the great monetary power of the United States.”
Seema Shah, chief global strategist, Principal Asset Management:
“Today’s report just about strikes a balance between reinforcing market expectations for a sequence of Fed rate cuts and not yet inviting renewed concerns around recession, so the broad market response should be mildly positive. But concerns about the health of the economy are starting to creep in and a further deterioration in the health of the labor market would soon tip the balance to ‘bad news is simply bad news.’”
Kevin Flanagan, head of fixed income strategy at WisdomTree says,
“The markets are leading the Fed and the jobs report was the last data point needed for a quarter point cut this month. A half point is not out of the question, but at this stage of the game I would still lean to a quarter-point cut, now if we had seen a negative payroll, then a 50bps cut would be on the table.”
Ali Jaffery‘s take at CIBC Capital Markets:
While the macro case for easing policy isn’t so clear cut, with the economy looking fairly resilient in the face of a major trade war and an immigration crackdown, the politics of monetary policy are getting complicated and it’s likely not worth defending keeping rates on hold.
Stephanie Roth, chief economist at Wolfe Research LLC, gave ger first thoughts on the report on Bloomberg Television’s Surveillance:
“First take is another weak summer employment report. Immigration seems to be having another impact on the data. When you look at the household survey, the foreign-born population was again, sort of the weaker part of it.”
“On Sept. 9, once we get the annual preliminary benchmark revisions, that’s going to be revised down to the tune of something like 600,000 — that’s going to be another really bad negative headline. Then beyond that, we think that the signs will look a little bit better.
Finally, the factory sector is clearly showing pain and reflects ongoing uncertainty linked to the new tariffs and the need for lower borrowing costs, Alliance for American Manufacturing President Scott Paul says in a release:
“The August jobs report should hopefully spur on two important actions. First, a cut in interest rates by the Federal Reserve. Second, concluding tariff actions and trade deals to provide businesses with the certainty they need to hire, invest in new capital equipment, and realign supply chains. Manufacturing will be treading water until we see those changes.”
For now, stocks are higher, Treasury yields are significantly lower (and bull steepening), gold hit a new record high, and bitcoin is surging .