A disappointing U.S. jobs report for July has intensified expectations that the Federal Reserve may deliver a sharp interest rate cut as soon as September—potentially by as much as 50 basis points.
According to Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, the world’s largest asset manager, recent labor market data provides strong justification for the Fed to begin monetary easing in the coming month.
“Following the July jobs report, we believe the Fed now has sufficient evidence to initiate a rate cut in September,” Rieder wrote in a client note on August 1. “If labor slack continues to build and monthly job creation remains below 100,000, we expect the Fed to move. A 50-basis-point cut is very much on the table, depending on how the data evolves.”
The U.S. economy added just 73,000 new jobs in July, significantly below the 100,000 forecast by economists polled by Dow Jones. Making matters worse, total job gains for May and June were revised down by nearly 260,000, further signaling a slowdown in labor market momentum.
In response to the weak numbers, traders dramatically raised the odds of a rate cut at the Fed’s September meeting to 83%, up from just 40% on July 31, based on CME Group’s FedWatch Tool.
If the Fed moves forward with a 50-basis-point cut, it would mirror its actions from September 2024, when it kicked off the current easing cycle with a similarly bold move.
Although Rieder highlighted this possibility, the futures market currently leans toward a more modest 25-basis-point reduction and has not yet priced in a half-point cut.
“Today’s report gives the Fed the evidence it needs to act,” Rieder added. “The only question left is how deep the cut will be.”
At its most recent policy meeting, the Fed opted to hold the benchmark rate steady at 4.25%–4.50%, with two FOMC members dissenting.
Fed Chair Jerome Powell emphasized that no decision has been made regarding the September meeting and that policymakers need time to assess the impact of tariffs and trade dynamics before making further moves.
BlackRock, which manages over $3.1 trillion in fixed-income assets, has consistently pointed to the labor market as a critical driver for the Fed’s future policy direction.
As job creation slows and economic indicators soften, investors increasingly believe the Fed won’t be able to maintain elevated interest rates without triggering broader economic stress.
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