FX.co ★ Weak jobs report fuels bets on September Fed rate cut

Anxiety is mounting across financial markets, edging toward panic. Friday’s disappointing US jobs report for August has led traders to fully price in a September rate cut from the Fed. The weak data have also raised the odds of a more aggressive move by the central bank, further stoking tensions.

According to the Fed Rate Monitor Tool, based on CME Group’s 30-day federal funds futures, market expectations have shifted sharply. Investors now see a 92.4% chance of a 25-basis-point rate cut and a 7.6% probability of a 50-basis-point rate reduction at the next monetary policy meeting. Just a day earlier, those probabilities were 98.4% and 0%, respectively.

The dramatic shift in sentiment followed the latest figures from the Labor Department. In August, the US economy added only 22,000 jobs, well below the expected 75,000. Data from the previous two months was also revised downward by 21,000. Meanwhile, the unemployment rate inched up to 4.3% from 4.2%, marking the highest level since 2021.

Persistent inflation is adding fuel to the fire. Fed Chair Jerome Powell has already signaled his readiness to ease monetary policy. Analysts argue that the weak jobs numbers give Powell a green light for a decisive move. Many expect the Fed to act in September, though a 50-basis-point cut is still viewed as unlikely.

Some economists downplay the severity of the latest data. “We do not see the report as weak enough to justify a 50bp rate cut in September, but it opens the door to rate cuts at consecutive meetings,” Michael Gapen, chief US economist at Morgan Stanley, said. The bank forecasts 25-basis-point cuts in September and December, though the labor weakness could accelerate the timeline.

“We’re changing our call from cuts in October and December this year, we’re now expecting cuts in September and October,” Ali Jaffery, economist at CIBC, noted. “We are keeping our terminal rate view unchanged at 3.5%, being reached around the middle of next year, so we are shifting the timing of the start of the easing cycle, but keeping the total amount of easing unchanged at 100bps.”

Analysts also highlight a weakening in labor demand. In this environment, the US central bank could deliver 25-basis-point cuts in both September and December 2025.