June Jobs Data Strengthens Case for Federal Reserve Rate Cuts Amid Cooling Economy
The latest monthly U.S. employment report provided more evidence that the economy is cooling, boosting expectations that the Federal Reserve will cut its benchmark interest rate in the coming months.

The Bureau of Labor Statistics reported Friday that U.S. employers added fewer jobs in June than in May, and the unemployment rate rose to its highest level since late 2021. The BLS also revised downward the jobs growth numbers for the previous two months. This indicates that the Fed’s high interest rates policy to slow economic activity and tame inflation is having its intended effect.
“Overall, the report aligns with ongoing moderation in growth and inflation. Job gains are not slowing as fast as consensus expectations, but the underlying pace is cooling,” Nomura economists said Friday.
Markets Betting Rate Cuts Start in September
Stocks gained and Treasury yields fell after the release of the jobs data, boosting optimism that the US central bank could start cutting its fed funds rate, currently at a 23-year high. Traders are pricing in a 77% chance that the Fed will cut the benchmark rate at the September meeting of the Federal Open Market Committee (FOMC), according to the CME Group’s FedWatch tool. This compares with a 64% likelihood priced in a week ago.
“The June jobs report adds to evidence from other recent growth indicators that the Fed is likely sufficiently restrictive,” Deutsche Bank economists said Friday. “These data boost prospects for a September rate cut, though that outcome requires continued evidence of moderating inflation over the coming months.”
“We continue to expect ongoing disinflation to make the case for two rate cuts this year, in September and December,” Nomura analysts wrote.
The Fed’s Balancing Act
Fed officials have said that progress is being made in the fight against inflation, but they also need more data confirming that price pressures are under control.
“We want to be more confident that inflation is moving sustainably down toward 2% before we start reducing how tight our policy is,” Fed Chair Jerome Powell said last Tuesday during a panel discussion at a European Central Bank conference in Portugal.
The latest reading of the Fed’s preferred measure of inflation, the Personal Consumption Expenditures index, showed that inflation in the 12 months ending in May slowed to 2.6%.
Fed officials are wary of moving too quickly to cut rates and risk reigniting inflation. At the same time, they are watching labor trends closely to ensure that high rates aren’t causing damage. The Fed has a dual mandate to keep prices stable and to promote maximum employment.
“We have to balance the two, and given the strength in the economy, we can approach that carefully,” Powell said last week.
Fed Chair Testimony, June Inflation Data on Tap
Powell will address the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday, giving an overview of current economic conditions. Lawmakers will likely press Powell on the impact that high interest rates are having on the economy and about the timetable for cutting the fed funds rate, which affects costs on everything from mortgages to student loans.
Later in the week, the first official readings on inflation in June will be released. The Consumer Price Index report, due Thursday, is expected to show that annual inflation moderated in June to 3.1% from 3.3% the month before, according to economists surveyed by The Wall Street Journal and Dow Jones Newswires. The Producer Price Index, to be released Friday, will provide a view of inflation at the wholesale level.
“In his comments last week, Powell reiterated a number of points from the June FOMC meeting but skewed dovishly at times by suggesting the disinflation trend has resumed and that policy is restrictive,” Deutsche Bank said in its report. “Importantly, his testimony will come before the June CPI release, which will be more important for determining whether the Fed will cut rates before the election.”