The case for a bigger rate cut is gaining momentum.
After another dismal jobs report, some economists say the Federal Reserve may now have to move more aggressively at its September meeting, with a 50-basis-point cut potentially on the table.
The tally for August followed a shocker for July, and the latest report showed payroll growth stalling, unemployment climbing to its highest level in nearly four years, and months of more downward revisions.
Nonfarm payrolls rose by just 22,000 last month, shooting far below expectations of 75,000. Revisions also erased gains from earlier in the summer, leaving June as the first month of outright job losses since 2020. The three-month average of payroll growth slowed to just 29,000, underscoring what EY-Parthenon’s Lydia Boussour called cracks “in the economy’s main pillar—the labor market.” The unemployment rate also ticked up to 4.3%, the highest since October 2021.
“A 50-basis-point cut is now in play,” analyst Jamie Cox of Harris Financial Group wrote in a note. “The Fed’s free pass on the labor market has ended.”
Kevin Hassett, the current White House National Economic Council director and a top contender to be nominated as Fed chair, said he expects a jumbo rate cut to be weighed by the Federal Reserve.
“The main market expectation is 25 basis points. But I would guess that there would be an expectation, a discussion of a higher cut, but I wouldn’t expect it to happen,” he told reporters at the White House.
Others were even more cautious.
“I don’t view the current results as soft enough to warrant 50,” Larry Werther, chief U.S. economist at Daiwa Capital Markets, wrote in a note, citing lingering inflation pressures.
Joseph Brusuelas of RSM echoed that view, adding, “One will hear talk of a 50-basis-point cut, which we think is premature. It would take a large downside surprise in the producer price index and consumer price index for that to happen.”
Still, ING’s James Knightley said: “Some investors are questioning whether the Fed could cut by 50 bp in September … We could see two or three [FOMC members] voting for 50 bp.”
For now, most Wall Street economists still expect the Fed to cut by a quarter point on Sept. 17, followed by additional moves in December and into 2026. But markets are increasingly pricing in the chance of a larger “insurance cut” to halt what looks like an emerging downturn.
Futures tied to the Fed’s benchmark rate put odds of a half-point cut at around 11.7% after the jobs data, up from 0% on Thursday.
Meanwhile, the yield on the 10-year Treasury tumbled 9.2% basis points to 4.084% on expectations for more aggressive easing.
The symbolism of an emergency cut
A bigger move would carry heavy symbolism: It could amount to an admission that Fed Chair Jerome Powell, who spent the better part of the past year warning against cutting too quickly, may have waited too long. President Donald Trump has already been hammering that message, accusing Powell of being “Mr. Too Late” and tightening monetary policy to a knot. A jumbo cut in September could be read as belated validation of that critique.
Still, the Fed is boxed in by competing pressures, namely its dual mandate for price stability and maximum employment. Tariffs have kept inflation stickier than expected, and some Fed officials worry that cutting too deeply risks reigniting price pressures just as households may face higher costs at the grocery store or the mall.
“It’s a tightrope,” Brusuelas said. “The labor market is deteriorating, but inflation is not yet back to target. The Fed’s job is getting harder, not easier.”
The outcome may hinge on next week’s benchmark revisions to payroll data, which could show hundreds of thousands fewer jobs created over the past year than previously reported. If the labor market proves even weaker than the official data already suggests, the case for a bolder half-point cut in September will only grow louder.
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