The story the U.S. labor market has been telling us just changed. And that could fundamentally alter the Fed’s playbook. Every week, there are important economic statistics released that shape views and opinions on the economy and, ultimately, move markets. While these statistics are helpful in allowing policymakers and corporate leaders to make decisions, they are often based on preliminary estimates. The Bureau of Labor Statistics revises these figures later, using more complete data to provide a more accurate account of how the economy was doing during that period. From GDP, jobs, and unemployment statistics, these are the yardsticks that we often measure not only how our economy is doing, but the country and globe as a whole.
Recently, we had revisions of jobs numbers for June, showing significantly slower job growth.[i] Additionally, there was an annual downward revision of over nine hundred thousand jobs for the month ending March.[ii] These types of revisions happen because the initial data is incomplete, not all businesses respond to the survey, and the difficulty to track new or closed businesses. The annual benchmarking is done with more data including unemployment tax records that is more complete well after initial estimates.
The Federal Reserve has a dual mandate of full employment and price stability. During the recent past, they have focused primarily on price stability in the fight against inflation. This resulted in a higher Federal Funds Rate that ripples throughout the economy, moving interest rates higher. The recent job revisions have sparked even further debate as to whether rates have been too high for too long. However, this week’s CPI numbers showing an uptick[iii] once again put the Fed in a difficult position between weakening job growth and higher prices. As I write this, the Fed Watch tool shows a ~93% probability of a 25bps cut and about seven percent for a 50bps cut.[iv]
Lower rates often come with the expectation of greater growth and a stimulated economy. Businesses have lower borrowing costs, which can boost profitability or be a catalyst for expansion. For families, this could mean buying that new car, or coming off the sidelines in the housing market, or even finding that new job in an expanding industry. For the market, this could also have positive effects, with the caveat that it is always unknown what is already ‘priced in’ and market reaction is rarely uniform or congruent with present economic health. Bond prices are inversely related to yields; given lower yields, there could be additional boosts to the 60/40 portfolio in the near term.
Most of that sounds good, but there are always two sides to every coin. Lower rates can also cause the economy to heat up too much, producing another bout of inflation. Also, it can devalue the currency as foreign investors can get a better yield by moving their money elsewhere.
As I end most of my economic-focused articles, it is a good idea to keep clients focused on their long-term plan. A changing economic environment can cause anxiety, but having knee-jerk reactions to unfavorable headlines often will not yield the best outcome.
[i]https://www.bls.gov/news.release/empsit.nr0.htm#:~:text=The%20change%20in%20total%20nonfarm,:30%20a.m.%20(ET).
[ii] https://www.wsj.com/economy/jobs/us-job-growth-revision-a9777d98?gaa_at=eafs&gaa_n=ASWzDAjxVdI2M499j9U9EJ85SapIdeWUey0qEEprKvu6t5da3Mq6AlG_c_zxtkWbb50%3D&gaa_ts=68c33389&gaa_sig=15knN8XFD9GI7OlvBu0ioncxkVYZpDWFAy0UsHtACEQ1o2RXBMQDsFxo8r7MySksOb_WTKm8Ta4aEQIdjBJh_Q%3D%3D
[iii] https://www.wsj.com/economy/cpi-inflation-august-2025-interest-rate-ed9f1e7c?mod=economy_lead_pos1
[iv] https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
