U.S. Job Growth Stalls in July as Prior Months Revised Sharply Lower, Strengthening Case for Fed Cuts
The U.S. labor market cooled further in July, with job growth falling well below expectations and earlier months’ gains sharply revised down — developments that could tilt the Federal Reserve closer to cutting interest rates.
Nonfarm payrolls increased by just 73,000 last month, the Bureau of Labor Statistics reported Friday, missing economists’ consensus forecast of 110,000. The unemployment rate rose to 4.2%, up from 4.1% in June.
What may prove more consequential for policy outlooks, however, were major downward revisions to prior data. June’s initially reported gain of 147,000 jobs was slashed to just 14,000, while May’s total dropped from 144,000 to 19,000. Over the three-month period from May through July, the U.S. added only 35,000 jobs per month on average — the weakest stretch since the early months of the Covid pandemic in 2020.
The report comes days after the Federal Reserve held interest rates steady, with Chair Jerome Powell signaling a cautious approach despite slowing inflation. Markets had begun to scale back expectations for a September rate cut, but the jobs data may now revive dovish bets.
Market Reaction
- Bitcoin (BTC) climbed modestly to $115,800 in the minutes following the release.
- The 10-year Treasury yield dropped 10 basis points to 4.30%.
- The U.S. dollar weakened by nearly 1% against both the euro and yen.
According to CME FedWatch, the probability of a September rate cut jumped to 55%, up from 40% earlier this week and well below the 75% odds priced in just a month ago.
Fed Chair Powell is now facing intensifying pressure not only from President Trump, who has been vocal about the need for lower interest rates, but also from within the Fed itself. Two voting members — Governors Christopher Waller and Michelle Bowman — supported cutting rates at this week’s FOMC meeting.
With hiring momentum faltering and inflation moderating, the Fed may find it increasingly difficult to hold off on easing into the fall.
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