Just two days after Fed Chair Jerome Powell refused to pre-commit to a September rate cut, the U.S. labor market did it for him.

SPY ETF breaks past support. See real-time price here.

A weak July jobs report and the biggest downward 2-month revisions since 2020 have economists—and markets—racing to President Donald Trump's side on calling for lower interest rates.

Labor Data Breaks Down And Manufacturing Is Not Helping Either

The U.S. economy added just 73,000 jobs in July, far below the 110,000 expected.

But the real shock came from the Bureau of Labor Statistics revising May and June non-farm payrolls down by a combined 258,000—erasing what were thought to be solid job gains. This is the largest two-month revision since the COVID-19 shock in 2020.

Private-sector job growth was narrowly concentrated, driven largely by healthcare, while government payrolls fell by 10,000. The unemployment rate edged up to 4.2%, reversing June's drop.

Wages, however, remained hot. Average hourly earnings rose 0.3% month-over-month and 3.9% year-over-year, both beating forecasts.

Still, signs of underlying weakness in the labor force—especially due to declining immigration—are mounting.

Meanwhile, U.S. manufacturing continues to struggle, signaling ongoing headwinds from tariff-driven uncertainty.

The ISM Manufacturing PMI decreased to 48 in July 2025, down from 49 in June and below the expected level of 49.5. It marked the fifth straight month of contraction and the lowest reading since October 2024.

Wall Street Moves To The Dovish Side

Markets are now fully pricing in two rate cuts by December, with the chance of a September 25-basis-point cut surging to 76% Friday, more than double Thursday's odds.

Oxford Economics' Nancy Vanden Houten said the weak July report and historic revisions "raise the odds of a Fed rate cut in September." She warned that slower labor force growth, especially among foreign-born workers, may mask deeper structural issues.

"The foreign-born labor force has shrunk by 1.2 million in just six months," she said, linking the decline to the Trump administration's immigration policies.

"Powell's take on September not being a live meeting might be under revision as we speak," said BOK Financial's analyst Steve Wyett, citing the sharp downward revisions.

David Russell, analyst at TradeStation, indicated that "huge negative revisions undermine beliefs about the strength of the labor market," but warned that "there are still signs of stagflation, with hourly earnings up more than expected."

Jamie Cox, managing partner for Harris Financial Group, weighed in. "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."

Bill Adams, chief economist at Comerica Bank, struck a more cautious tone. He said the weak July jobs report adds pressure on the Fed to cut rates later this year, but warned the decision "isn't a slam dunk." Adams said the Fed will closely watch the August jobs report and inflation data before making its next move.

Yields on two-year Treasury bonds, which are highly sensitive to interest-rate expectations, tumbled 22 basis points to 3.75%, eyeing the largest intraday drop since August 2024.

The U.S. dollar index – as closely tracked by the Invesco DB USD Index Bullish Fund ETF – fell 1.2% by 10:30 a.m. in New York, trimming weekly gains.

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