The Federal Reserve is expected to begin cutting short-term interest rates next week and continue lowering them through the rest of the year. Traders believe the move aims to support a labor market that started slowing well before President Donald Trump’s tariffs took effect.
A preliminary revision from the Bureau of Labor Statistics showed the U.S. economy added 911,000 fewer jobs in the 12 months through March than previously estimated. This means average monthly payroll gains were likely far below the 147,000 initially reported.
Combined with more recent labor market data showing slower hiring, the report strengthens the case for rate cuts. “It gives the Fed another reason to lower rates next week,” said BMO economist Sal Guatieri. Analysts now expect more cuts by year-end than the two projected by Fed policymakers in June.
Traders remain confident that the Fed will cut the policy rate by 0.25 percentage points at its September 16–17 meeting. Another quarter-point cut is also expected at the October meeting.
Markets see a third rate cut in December as more likely than a pause, though expectations have eased slightly. The chances of a fourth rate cut by January 2026 dropped below 40%, compared to nearly 50% before the revised data was released.
Fed Chair Jerome Powell recently said that growing risks to the job market may justify cautious policy easing. However, central bankers remain cautious about cutting too much, especially with inflation still above the 2% target and tariff-related risks from Trump’s policies.
The Fed will receive two important inflation reports later this week, which are expected to show continued upward pressure on prices.
