Bets that the Federal Reserve will cut interest rates by 50 basis points this month gained momentum on Friday after US jobs data revealed a sharp slowdown in hiring.
Non-farm payrolls (NFP) showed the economy added just 22,000 jobs in August, far below the 75,000 expected and down from 73,000 in July.
The unemployment rate rose to 4.3% from 4.2%, its highest since 2021.
Private payrolls grew by 38,000, while government jobs fell 16,000.
“The slowdown in the US labor market was confirmed today, when the NFP report reported that only 22,000 jobs were created last month,” said Kathleen Brooks, research director at XTB. “The fact that the job losses were broad-based is leading to fears of a slowdown.”
Brooks noted that “this payrolls report leads to lots of questions about the actual strength of the US economy and what is driving the rapid slowdown in hiring.”
“Thus, it could be a volatile few days for financial markets, as this report sets the scene for a mega rate cut from the Fed on 17th September,” Brooks said.
Some market watchers are now pricing in more than a quarter-point reduction at the upcoming FOMC meeting.
“In the aftermath of this report and the ugly payrolls number, the Fed Fund Futures market is now pricing in more than 25 basis point rate cut for this month, and calls are likely to grow for a 50 basis point cut in September,” Brooks said.
Economists at Wells Fargo, however, still expect a more gradual easing path.
“The highest unemployment rate reading since October 2021 and another month of anemic hiring growth were the highlights of another weak employment report,” they wrote.
“Faced with such a dilemma, we believe the FOMC will put more weight on rescuing the labor market and hope that tariff-induced inflation will fade in 2026. We look for a 25 basis point rate cut at the upcoming FOMC meeting on September 17 to 18 followed by two more 25 basis point rate cuts at the final two meetings of the year.”