A recent, unexpectedly weak U.S. jobs report has significantly shifted the consensus among leading economists, compelling many to align with former President Donald Trump’s long-standing calls for lower interest rates and putting considerable pressure on Federal Reserve Chair Jerome Powell.
The core of this dramatic shift stems from the July jobs data, which revealed a mere 73,000 jobs added, falling well short of the 110,000 expected. More critically, the Bureau of Labor Statistics delivered a staggering downward revision of May and June non-farm payrolls by a combined 258,000, effectively erasing previously perceived solid gains in the US economy. This represents the largest two-month revision since the profound economic shock of 2020.
Delving deeper into the labor market statistics, private-sector job growth proved narrowly concentrated, primarily buoyed by the healthcare sector, while government payrolls experienced a notable decline of 10,000. Furthermore, the unemployment rate subtly increased to 4.2%, reversing the slight improvement seen in June, suggesting underlying fragility despite some areas of growth.
Compounding the concerns over the economic policy landscape, the ISM Manufacturing PMI registered a decrease to 48 in July 2025, down from 49 in June and below the anticipated 49.5. This marks the fifth consecutive month of contraction and represents the lowest reading since October 2024, indicating a broader slowdown in key industrial sectors.
In response to these concerning indicators, financial markets are now aggressively pricing in the likelihood of two interest rates cuts by December, with the probability of a 25-basis-point reduction in September surging to 76% on Friday—more than double the odds from Thursday. This swift recalibration reflects growing investor conviction that the Federal Reserve will be compelled to act sooner than previously indicated.
Analysts are weighing in with urgency. Oxford Economics highlighted that the weak July jobs report and historic revisions “raise the odds of a Fed rate cut in September.” They also cautioned that slower labor force growth, particularly among foreign-born workers, might be masking deeper structural issues within the US economy, potentially influenced by past immigration policies.
Further reinforcing this sentiment, a BOK Financial analyst noted that “Powell’s take on September not being a live meeting might be under revision as we speak,” directly citing the sharp downward revisions. Similarly, an analyst at TradeStation indicated that “huge negative revisions undermine beliefs about the strength of the labor market,” though they also warned of “signs of stagflation, with hourly earnings up more than expected.”
Adding to the chorus, the managing partner for Harris Financial Group stated, “Powell is going to regret holding rates steady this week. September is a lock for a rate cut—and it might even be 50 basis points.” However, the chief economist at Comerica Bank struck a more cautious tone, acknowledging the pressure on the Fed but emphasizing that a decision “isn’t a slam dunk,” suggesting the Fed will closely monitor August jobs and inflation data.
The immediate market repercussions were evident as yields on two-year Treasury bonds, highly sensitive to interest rates expectations, tumbled 22 basis points to 3.75%, marking what could be the largest intraday drop since August 2024. Concurrently, the U.S. dollar index fell by 1.2% by 10:30 a.m. in New York, trimming its weekly gains, underscoring the broad market analysis and reaction to the unexpected economic policy shifts.
