Everyone’s watching Jerome Powell as warnings flash for the U.S. economy

Economy·Fortune IntelligenceEveryone’s watching Jerome Powell as warnings flash for the U.S. economyBy Nick LichtenbergBy Nick LichtenbergFortune Intelligence EditorNick LichtenbergFortune Intelligence EditorNick Lichtenberg is Fortune Intelligence editor and was formerly Fortune's executive editor of global news.SEE FULL BIO Federal Reserve chair Jerome Powell.Chip Somodevilla/Getty ImagesA surprisingly weak July employment report has intensified expectations that the Federal Reserve will resume cutting interest rates as soon as September, with mounting evidence of a slowing U.S. economy and faltering labor market offsetting persistent inflation worries driven by new tariff hikes

The July jobs report, of course, is changing the picture rapidly

The Labor Department reported a gain of just 73,000 nonfarm payroll jobs in July, well below consensus forecasts

While July’s number alone would not spell crisis, the back-to-back weakness and hefty revisions roused investor concerns potential cracks forming in the U.S. labor market

Powell has repeatedly emphasized the balance between labor supply and demand, and said the unemployment rate is the “key indicator to watch.” July’s unemployment rate ticked up to 4.2%, just shy of a 12-month high, viding further evidence of softening conditions

Market reaction was swift

Stephen Brown, Deputy Chief North America Economist for re firm Capital Economics, called it a “payrolls shocker.” He noted an immediate change in , which repriced the lihood of a September rate cut at 85%, a jump from below 50% prior to the jobs data, as futures traders bet that the Federal Open Market Committee will need to respond to mounting evidence of economic softening. “The July jobs report goes a long way toward viding the evidence of a weaker labor market that the Fed needs to justify cutting interest rates in the face of above-target inflation,” said Brian Rose, senior U.S

Economist at UBS Global Wealth Management, in a statement to Fortune Intelligence

This should help to offset some of the inflationary pressure driven by tariff hikes,” he added

Other recent data reinforce the picture of an economy under strain

Survey indicators such as the ISM manufacturing employment index fell further in July, while measures of capital spending have only recovered modestly after disruptions ing April’s “Liberation Day.” Meanwhile, President Trump’s new tariff measures have pushed up import costs, adding to the inflation outlook

Fiendishly mixed signals The July payroll dip, coming on the heels of the disruptive “Liberation Day” in April, may not yet herald a deeper jobs slide, other data suggests

Analysts expect Powell to use the upcoming Jackson Hole Economic Symposium, to be held August 21–23, as an opportunity to signal the central bank’s readiness to act if labor market weakness persists and larger inflation effects from tariffs do not materialize

Rose’s baseline scenario now sees the Fed resuming rate cuts at its September meeting and continuing to cut by 25 basis points each meeting through January, trimming the federal funds rate by a full percentage point to bring borrowing costs back to a “roughly neutral” level. “Given this morning’s data, Powell may be willing to drop a hint that the Fed is leaning toward a September cut,” Rose said

For this story, Fortune used generative AI to help with an initial draft

An editor verified the accuracy of the information before publishing

Explore this year's list.