The U.S. labor market just offered the first major reality check on President Donald Trump's tariff-driven economic uncertainty—and it's not the message investors or the White House were hoping for.

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Friday's official July jobs report revealed a sharp hiring slowdown, a rise in unemployment, and deep downward revisions to past data that flipped solid gains into significant disappointments.

The only bright spot: wages are still holding up.

July Hiring Disappoints; May, June Numbers Crash

Nonfarm payrolls rose by just 73,000 in July, far below the 110,000 expected by economists. The private sector added 83,000 jobs, while government employment contracted by 10,000.

Yet the biggest surprise wasn't July's soft print—it was the massive downward revisions to previous months.

May's job growth was slashed from 144,000 to 19,000, while June was revised from 147,000 to just 14,000.

These revisions made both May and June the worst months for employment growth since December 2020.

That's a combined 258,000 jobs wiped from earlier estimates, highlighting the fragility behind what were believed to be strong numbers.

The unemployment rate ticked up to 4.2% from June's 4.1%, in line with forecasts.

Average hourly earnings rose 3.9% year-over-year, a notch above June's 3.7% and better than the 3.8% expected.

On a monthly basis, wages climbed 0.3%, matching expectations and accelerating from 0.2% in June.

Trump Blasts Powell, Calls For Fed Takeover

The disappointing jobs report came just one day after June's hotter-than-expected PCE inflation data gave cover to the Federal Reserve's decision to hold rates steady.

Now, weak job creation risks putting the Fed's dual mandate—price stability and full employment—on a collision course.

President Donald Trump wasted no time renewing his attacks on Jerome Powell.

In a post on Truth Social on Friday, he wrote: "Jerome ‘too late’ Powell, a stubborn moron, must substantially lower interest rates, now. If he continues to refuse, the board should assume control, and do what everyone knows has to be done!"

Fed Governors Michelle Bowman and Christopher Waller, who dissented at July's FOMC meeting in favor of a rate cut, explained why they believe the Fed should act now.

"I believe beginning to move the policy rate at a gradual pace toward neutral will help maintain the labor market near full employment," Bowman said, adding that the risk of waiting is a further deterioration in jobs and growth.

"Upside risks to price stability have diminished," she said.

Waller added that tariffs are a one-time price event and shouldn’t deter policy action.

"I see no reason we should hold the policy rate at its current level and risk a sudden decline in the labor market."

Markets React Sharply

Markets quickly adjusted to the softer-than-expected labor data.

Futures traders fully priced in two rate cuts by December, while assigning a 65% chance of a 25 basis-point cut in September, according to CME FedWatch data.

The U.S. dollar is now on track for a six-day winning streak, while Treasury yields have plunged, with the 2-year yield falling 18 basis points to 3.78%.

Gold – as tracked by the SPDR Gold Trust – surged nearly 1.5% to $3,340 per ounce, and U.S. equity futures extended early losses in premarket trading, as investors braced for more economic uncertainty from tariffs and a surprising labor market weakness.

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