U.S. economy is worse than thought with 1.2 million fewer jobs — what that means for the Fed
News Summary
The Bureau of Labor Statistics reported that the U.S. economy added 911,000 fewer jobs than previously reported for the year preceding March 2025. Downward revisions since that date suggest an actual reduction in payroll growth of approximately 1.2 million over the past 16 months. This data puts significant pressure on the Federal Reserve to cut interest rates, with markets now expecting a cut at each of the three remaining meetings in 2025. There's a 100% chance priced in for a quarter-point cut next week, with a slight possibility of a half-point reduction. Citigroup economist Andrew Hollenhorst suggests that if this data were available in real-time, policy rates would be lower today, and a jumbo half-percentage point cut could be justified next week. The Trump administration, through Press Secretary Karoline Leavitt, has intensified calls for rate cuts, stating that Fed Chair Jerome Powell has “run out of excuses.” While Goldman Sachs disputes the BLS revisions, estimating a reduction closer to 550,000, it acknowledges a “materially softened” labor market. Other indicators, such as a mere 22,000 nonfarm payrolls added in August and a record low in worker sentiment from a New York Fed survey, corroborate the weakening trend.
Background
The U.S. economy is currently facing significant downward revisions in labor market data, casting doubt on the true health of the economic recovery. Historically, a robust job market has been a key factor for the Federal Reserve to maintain higher interest rates and a more cautious approach to monetary easing. The Federal Reserve has kept policy rates elevated over the past year to combat inflation. However, as economic growth shows signs of slowing and inflation pressures ease, market expectations for rate cuts have intensified. Concurrently, U.S. President Donald Trump has consistently pressured the Fed during his presidency to lower interest rates to stimulate growth, repeatedly criticizing the central bank for being “too late” in its policy adjustments. The newly revised job figures provide fresh ammunition for the Trump administration, significantly amplifying the political pressure on the Fed.
In-Depth AI Insights
How might the Fed's perceived independence and its reaction function evolve under the renewed political pressure from the Trump administration? - The significant job revisions validate President Trump's long-standing criticisms of the Fed's