U.S. Labor Market Weakens, Weakens, Fed Expected to Cut Interest Rates

The US labor market has shown significant weakness, sparking expectations of interest rate cuts by the Federal Reserve. Here's what's happening ¹ ²:

- *Job Growth Slows Down*: The US economy added only 22,000 jobs in August, far below the expected 110,000 jobs. This slowdown is broad-based, with losses in manufacturing and government jobs.

- *Unemployment Rate Increases*: The unemployment rate ticked up to 4.3% from 4.2%, reaching its highest level since 2021.

- *Wage Growth Declines*: Average hourly earnings rose 3.6% on an annualized basis over the past three months, lower than the average of 4.0% in 2024.

- *Fed Rate Cuts Likely*: Markets are confident that the Fed will cut interest rates at its September meeting and are pricing in a 65% chance of a 0.75 percentage point cut by December.

- *Economic Implications*: A weakening labor market could support the need for lower rates to boost the economy. However, the pace of additional cuts will be tempered by the ongoing risk of inflation.

Some key insights from economists ² ³:

- *"Alarm Bells" Ringing*: Heather Long, chief economist at Navy Federal Credit Union, warns that the labor market is showing signs of distress, with job growth excluding healthcare being negative.

- *Rate Cuts Justified*: Mortgage Bankers Association chief economist Mike Fratantoni believes the weak job market supports the Fed starting rate cuts at the next meeting.

- *Economic Uncertainty*: The slowdown in job growth is attributed to uncertainty sparked by tariffs and inflation, which has led businesses to put growth plans on hold.