- Fed rate cut odds rise sharply after weaker than expected jobs.
- Markets rally as September rate cut becomes the likely outcome.
- Unemployment climbs, fueling expectations of imminent Federal Reserve easing steps.
The likelihood of a Federal Reserve rate cut in September has surged after new data revealed unexpected weakness in the US job market. According to the CME FedWatch Tool, there is now a 90.4% chance of a 25 basis points cut, while the possibility of a deeper 50 basis points cut stands at 9.6%.
In August, the labor market’s decline was evident, with only 22,000 new jobs created instead of the expected 75,000. To make things worse, July figures were revised to reflect a net decrease in work. The unemployment rate reached 4.3%, its highest point since October 2021, indicating an apparent chill in hiring.
Bank of America has revised its forecast to capture these changes and is now projecting two reductions in 2025. The former is likely to happen in September and the latter in December. In the meantime, market commentators, such as crypto analyst Ash Crypto, are predicting an essentially sealed September cut.
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Markets Respond to Growing Confidence in Rate Cuts
Financial markets are already pricing in policy easing. The S&P 500 has reached record highs on expectations of lower rates, while Treasury yields dropped sharply, indicating strong investor belief in imminent cuts.
Previously, Treasury Secretary Scott Bessent recommended more vigorous moves, proposing cuts of as much as 50 basis points. Analysts, however, warn that this would seem hasty if inflation is still above target. To date, the bigger picture supports a 25 basis point reduction as the most probable solution.
Low rates push stocks up, the dollar down, and gold and risk assets such as cryptocurrencies up. As a result, traders are trading around the announcement that is likely to be made in September, and another round of easing is expected in December.
A lack of strong job creation and an increased unemployment rate have reinforced the anticipation of a rate cut in September. While markets prepare for a 25 basis point reduction, the Federal Reserve’s next steps remain crucial for economic stability heading into the year’s final months.
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