Investors are increasingly confident about a potential cut to the base rate, with an 87% chance anticipated for September. July payroll growth of 73,000 fell short of the expected 100,000, prompting revisions that reveal significant job market weaknesses. Analysts note that the recent changes in labor market data may pressure the Fed to act to support economic activity. The resignation of FOMC member Adriana Kugler could lead to a more dovish stance from the Fed, heightening speculation around fiscal policy adjusting to labor market conditions and tariffs affecting economic expectations.
As markets open this week, investors feel more confident about an incoming cut to the base rate-but that's about as far as their courage goes. July payroll growth came in far below forecasts, and May-June figures were revised down significantly, signaling deeper job market weakness. Analysts now expect the revisions to at last deliver the cut the Oval Office has been pushing for.
Until Friday, analysts had little confidence that the U.S. Federal Reserve was about to deliver an interest rate cut, but last week's revisions to labor market data have led many to bet in favor of Jerome Powell cutting at the Fed's next meeting in September.
The resignation of FOMC member Adriana Kugler also opens the door for a more dovish Fed shift. With the average gain over the past three months now averaging only 35,000, the health of the labor market is in considerably worse shape than previously believed.
As markets open today, investors are still digesting the ramifications of the data which suggests tariffs are biting harder than previously hoped. Analysts will also be working through the implications of the resignation of Adriana Kugler, one of the voting members of the Federal Open Market Committee (FOMC).
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