New U.S. labor market data has intensified speculation about a Federal Reserve interest rate cut in September, with analysts warning of economic headwinds as unemployment climbs to 4.3% – its highest level since late 2020.
The Labor Department's Friday report revealed a 0.1 percentage point monthly increase in unemployment, while ADP data showed private sector job growth plunging to 54,000 in August, less than half of July's revised 106,000 figure. The numbers fell significantly below market expectations, triggering a broad market sell-off.
Wall Street reacted swiftly, with all three major indexes closing lower. The dollar index dropped 0.8% against global currencies, while 10-year Treasury yields fell to 4.07%. Gold futures rose 1.6% as investors sought safe-haven assets.
CME Group's FedWatch tool now shows a 78% probability of at least a 25-basis-point rate cut at the September 17-18 policy meeting. Bank of America economists anticipate consecutive cuts in September and December, noting the Fed may pivot from inflation control to addressing labor market stability.
The developments have sparked political debate, with Virginia Representative Don Beyer criticizing former President Trump's trade policies on social media platform X, linking them to current economic challenges.
Market analysts caution that continued weakness could accelerate monetary easing, with some models suggesting potential for 50-basis-point cuts by 2026. The Fed's next move remains critical for global markets, particularly Asian economies sensitive to U.S. rate fluctuations.
