New data on the US labor market showed unexpected weakness, leading to increased likelihood of a Federal Reserve rate cut in September.
Labor Market Data and Fed Projections
In August, only 22,000 new jobs were created, significantly below the expected 75,000. The unemployment rate reached 4.3%, the highest since October 2021. According to the CME FedWatch Tool, the chance of a 25 basis points cut is 90.4%, while the chance of a deeper cut of 50 basis points stands at 9.6%. Bank of America has revised its forecasts, now projecting two rate cuts in 2025, with the first likely occurring in September.
Financial Markets React
Financial markets have already begun to price in policy easing. The S&P 500 has reached record highs on expectations of lower rates, while Treasury yields have dropped sharply. Market commentators, such as crypto analyst Ash Crypto, predict a near-certainty of a September rate cut.
Impact on Economic Stability
Low rates tend to push stocks up, the dollar down, and boost gold and risk assets like cryptocurrencies. With another round of easing expected in December, the Federal Reserve's next steps will be crucial for economic stability as the year comes to a close.
The deterioration of the labor market reinforces expectations of a Fed rate cut in September, which could significantly impact financial markets and overall economic stability.
