Shockingly bad jobs report reveals a monthslong stall and may trigger Fed rate cuts soon. ‘Powell is going to regret holding rates steady’

That may mpt the Federal Reserve to lower rates sooner rather than later, which President Donald Trump has been demanding for months

The U.S. labor market looks much weaker than previously thought, and Wall Street now expects the Federal Reserve to resume rate cuts sooner rather than later

The Labor Department reported Friday that payrolls grew by just 73,000 last month, well below forecasts for 100,000

But downward revisions for prior months shocked investors even more, revealing that the labor market came to a near standstill over the spring

The massive revisions mpted President Donald Trump to fire the head of the federal agency that puts out the payroll data, Erika McEntarfer, commissioner of the Bureau of Labor Statistics

The data re was so bad that Eric Pachman, chief analytics officer at Bancreek Capital Advisors, wondered that while July’s 73,000 looks comparatively good news, “how can we even trust this number now?” The jobs report came just days after the Fed kept rates steady again with Chairman Jerome Powell signaling a continued desire to wait for more data to see how President Donald Trump’s tariff would impact inflation, which is still running the central bank’s 2% target. “Powell is going to regret holding rates steady this week,” Jamie Cox, managing partner for Harris Financial Group, said in a note. “September is a lock for a rate cut and it might even be a 50-basis point move to make up the lost time.” The unemployment rate also edged up to 4.2% from 4.1%, even as the labor force shrank

The yield on the two-year Treasury, which is more sensitive to Fed rates, plunged almost 27 basis points. were slumping before the jobs data as Trump announced fresh tariff rates on U.S. trading partners, with some higher than before, as well as an additional 40% duty for all transshipped goods

After the jobs report, Trump reiterated his months-long demand for the Fed to lower rates, while Cleveland Fed President Beth Hammack stood by the central bank’s decision on Wednesday to keep policy steady

These revisions put May’s headline NFP at 19k and June’s at 14k,” Adam Hetts, global head of Multi-Asset and portfolio manager at Janus Henderson Investors, said in a note. “Had those figures been the initial s a month or two ago it would have significantly changed the labor market narrative over the entire summer

Indeed, odds of a September rate cut are increasing significantly on the back of this data release.” Labor supply vs. demand Other analysts noted that other details don’t suggest there’s a total collapse in employment

The unemployment rate hasn’t changed much for a while

Wages are still growing at a healthy clip, putting more money in consumers’ wallets

Meanwhile, weekly jobs claims data has been steady overall too, meaning there hasn’t been a widespread surge in layoffs

A critical question is whether the muted job gains are due to slow labor supply or slow demand

As a result, even a tepid uptick in hiring will barely move the needle on the jobless rate

In fact, Powell suggested on Wednesday that the unemployment rate merits closer attention than the payroll number since less demand is needed to offset supply

Whether supply or demand is the culprit has major implications for the Fed, according to Preston Caldwell, chief U.S. economist at Morningstar. “The Fed has no reason to loosen monetary policy in response to a decline in job growth driven by labor supply — as such a decline is neither deflationary nor does it create a gap with respect to maximum sustainable employment,” he wrote in a note. “On the other hand, the speed of the deceleration in job growth, along with uncertainty what exactly the data means, should be alarming to the Fed, and argues strongly for a September cut as a phylactic measure at the least.” But Bill Adams, chief economist for Comerica Bank, noted that Trump’s tariffs are still putting upward pressure on inflation, making it less -cut that the Fed will ease policy soon

He also pointed to labor supply, specifically that the overall labor force has fallen for three consecutive months

Fed policymakers will see another jobs report before their September meeting. “If it shows labor supply declined again and held the unemployment rate steady while tariffs push up inflation, the Fed is ly to hold interest rates steady again,” Adams wrote in a note

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