01.08.2025 14:12

The unexpectedly weak July jobs report significantly undermined Jerome Powell's assertions of a robust labor market, sending shockwaves through Wall Street. The addition of only 73,000 nonfarm payrolls, drastically below economists' projections of 100,000 and barely exceeding June's revised figure, cast doubt on the Federal Reserve's narrative.

Subsequent revisions to previous months' data revealed a far bleaker picture. June's payroll growth was revised down by over 133,000, while May's figures were slashed by a staggering 125,000. In total, a quarter of a million jobs were effectively erased from the last two months' data – a substantial discrepancy. Adding to the concerning trend, the unemployment rate quietly climbed to 4.2%, aligning with forecasts but still representing an increase from the previous month. This sharp divergence from the Fed's recent pronouncements created significant uncertainty.

The market's immediate reaction was a dramatic shift in expectations. Following the release of the report, trading activity surged, with CME's FedWatch tool reflecting a 75.5% probability of a September interest rate cut – a substantial increase from the 40% probability just 24 hours prior. Similar sentiment was observed on Kalshi, indicating a high likelihood of the Fed easing monetary policy. This swift change in market sentiment directly contradicts Powell's recent statements affirming the strength of the labor market, highlighting a significant loss of credibility for the Federal Reserve.

This situation presents two troubling interpretations. Either the labor market is weakening, potentially signaling a recession, or the Bureau of Labor Statistics data is fundamentally flawed, obscuring the true state of the economy. Both scenarios are detrimental. The former suggests impending economic hardship, while the latter signifies a critical lack of reliable economic information. The immediate reaction in the bond market further underscored the gravity of the situation.