Weak July Jobs Report Sparks Rate Cut Frenzy: ’A Gamechanger’ for Markets

Wall Street's crystal balls just got a jolt. The latest jobs data—weaker than a decaf espresso—has traders pricing in Fed cuts like it's Black Friday.

Economists scramble as soft payroll numbers rewrite the script

Powell's printer might finally get warm again as rate-cut bets surge past 80%. Gold bugs cheer while bond vigilantes take a coffee break—for now.

Funny how 'transitory' inflation becomes permanent when your portfolio's bleeding.

September rate cut odds surge

The revised data has added urgency to calls for rate cuts from the Federal Reserve, with market pricing shifting notably in the aftermath.

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"We still anticipate that the Fed starts to cut in September with consecutive cuts thereafter leading to about 100 basis points of cuts in total," said Leslie Falcone, head of taxable fixed income strategy at UBS Global Wealth Management.

Falcone noted that while the Fed had already turned more cautious, the scale of the revisions surprised even the most dovish forecasters. "Some of these revisions are much more than what people expected. ... I do think that this is a bit on the weaker side. And it does put cuts back on the table."

Traders seem to agree. Following the report, the probability of a September rate cut surged to about 80%, up from just 38% the day prior, according to the CME FedWatch Tool.

Federal Reserve Chair Jerome Powell speaks during a news conference following the Federal Open Market Committee meeting on July 30 in Washington, D.C. (AP Photo/Manuel Balce Ceneta) · ASSOCIATED PRESS

Earlier this week, Fed governors Michelle Bowman and Christopher Waller broke from the majority of FOMC officials, dissenting against the decision to hold interest rates steady after warning that the labor market was weaker than initial data had indicated.

That warning appeared prescient on Friday as markets tumbled following the report. The tech-heavy Nasdaq (^IXIC) fell over 2% by midmorning, the Dow (DOW) shed nearly 600 points, and the S&P 500 (^GSPC) dropped around 1.6%. Meanwhile, bond prices surged on increased rate cut bets, sending the yield on the 10-year Treasury (^TNX) down 11 basis points to around 4.2%.

Adding to labor market concerns, escalating trade tensions were also top of mind for investors as TRUMP hiked tariff rates on several US trading partners, including a surprise 39% tariff on Switzerland.

"The market had sort of put tariffs in the rearview mirror and assumed that the labor market was okay," Sosnick said. "Well, both of those assumptions have been overturned quite dramatically this morning."

The strategist warned markets appear to be entering a "reckoning period," explaining, "We're not seeing a lot of reflexive dip buying. ... That, to me, tells me that the psychology, at least as of this particular moment, is a bit more tenuous than it was."

Economists are sounding the alarm on a weakening labor market after July's jobs report revealed sharp downward revisions (Reuters/Brian Snyder/File Photo) · Reuters / Reuters

Correction: A previous version of this article misspelled Steve Sosnick's name. We regret the error.

Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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