Following August’s nonfarm payrolls data, the odds of a 50 bps rate cut during the September 16-17 Federal Open Market Committee (FOMC) meeting are now at 14.3% compared to 0% a day ago, a week ago, and a month ago, according to CME’s FedWatch tool. In addition, the odds of a 25 bps rate cut are now at 85.7% compared to 96.4% yesterday and 86.4% a week ago.
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CME’s odds seem to seal a deal for a rate cut, with chances of the federal funds rate staying unchanged at 0%, down from 3.6% yesterday and 13.6% a week ago.
Nonfarm Payrolls Add to Labor Market Concerns
The Fed is more incentivized to cut rates with a slowing labor market because lower borrowing rates can stimulate economic growth and hiring. August’s nonfarm payrolls showed 22,000 new jobs, badly missing the estimate of 75,000 additions. Furthermore, July and June’s jobs counts were lowered by a combined 21,000 jobs, with June ending up at a loss of 13,000 jobs. That ends a 53-month streak of monthly payroll gains.
The three months ending in August have now averaged 29,000 new jobs per month, the lowest rate since the Covid pandemic.
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