Weak U.S. employment report puts pressure on Powell as Wall Street bets on a rate cut in September
The July employment report came out and instantly ruined the confidence that remained in Jerome Powell's 'strong labor market' line.
Non-farm jobs increased by only 73,000, well below the 100,000 hoped for by economists, and barely higher than the revised June figure of 14,000. This is what the BLS now says was added in June after removing more than 133,000 from the original estimate of 147,000.
May was not spared either. The previous figure of 144,000 has been reduced to 19,000, meaning that 125,000 also disappeared that month. In total, 258,000 jobs have simply evaporated from the last two months of data. That's more than the population of Scottsdale, Arizona; gone.
And while all this is happening, the unemployment rate has quietly risen to 4.2%, exactly what was expected, but still higher than last month. This has put a big hole in the entire narrative the Fed was trying to weave just a day earlier.
Markets bet on a rate cut as the Fed's credibility takes a hit
Immediately after the report, traders jumped into action. CME's FedWatch showed a 75.5% chance of a rate cut at the Fed's next meeting in September, up from just 40% only 24 hours earlier. Kalshi traders expressed the same sentiment, anticipating a 75% chance that Powell and his team would yield and ease.
Powell literally told reporters two days ago that the labor market was still 'strong'. That quote didn't even last a news cycle before becoming ridiculous. The data came in and said the opposite. Strongly.
There are now only two ways to interpret this: either the labor market is actually sliding into a recession, or the BLS data is so messed up that it is missing a quarter of a million jobs in just two months. Neither is good. One means economic pain. The other means that no one knows what is really going on.
Bonds didn't wait to analyze. The two-year yield fell by 15 basis points to 3.80%, and the ten-year yield decreased by 8 basis points. This kind of movement screams 'imminent pivot'.
So now, the idea of a rate cut in September is no longer a 'maybe'. It is integrated as a settled agreement. And Powell's attempts earlier this week to cool expectations have just been crushed by raw numbers.
Meanwhile, as always, Trump is publicly criticizing the Fed again, calling for an immediate cut. On Truth, he said, 'Too little, too late. Jerome 'Too Late' Powell is a disaster. LOWER THE RATE! The good news is that rates are bringing in billions of dollars to the U.S.!'
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