For the majority of 2025, analysts and investors have begrudgingly backed the stance of Jerome Powell and the Federal Open Market Committee (FOMC). Looking at the same economic data as the Fed, they have thus far drawn the conclusion that it hasn’t been time to cut.
Until now—or more specifically, until Friday.
Late last week’s bombshell jobs report from the Bureau of Labor Statistics threw the dual mandate of the Fed (inflation at 2% and maximum employment) into sharp focus. The labor market is doing considerably worst than previously realized, to the tune of 258,000 jobs stripped from earlier estimates and unemployment pushing up to 4.2%.
With two members of the FOMC having dissented from the decision to keep the rate at the current level of 4.25% to 4.5%, more regional bank presidents are now suggesting a change of tune.
Neel Kashkari, president of the Minneapolis Fed, is generally seen as a hawkish member of the Fed but said in an interview yesterday it may now be time to cut: “There’s two categories of data that I’m focussed on: There’s a bunch of data that I know and that I’ve got confidence in, and there’s data that I don’t know and we’re not going to know for a while.
“The data that I think we know is that the economy is slowing … and that means in the near term it may become appropriate to start adjusting the federal funds rate.”
He was echoed by San Francisco Fed president Mary Daly, who told the Anchorage Economic Summit yesterday in prepared remarks: “My own assessment is that the risks to our employment and inflation goals are roughly balanced. Inflation, absent tariffs, has been gradually trending down, and with a slowing economy and ongoing restrictive monetary policy, should continue to do so. Tariffs will boost inflation in the near term, but likely not in a persistent way that monetary policy would need to offset.
“At the same time, the labor market has softened. And I would see additional slowing as unwelcome, especially since we know that once the labor market stumbles, it tends to fall quickly and hard. All this means that we will likely need to adjust policy in the coming months.”
Meanwhile Federal Reserve Governor Lisa Cook told a Boston Fed event the jobs report “concerning”, adding “these revisions are somewhat typical of turning points.”
More importantly, neither Presidents Kashkari or Daly—or Governor Cook—were among the dissenters a the July meeting. With Governor Chris Waller and FOMC member Michelle Bowman already lobbying for a cut, the ranks of those on the dovish end of the spectrum are growing by the day.
“Pricing of a September Fed rate cut ticked up from 90% to 95% amid the shifting rhetoric, with 60bps of cuts priced by the December meeting (+2.0bps on the day),” noted Deutsche Bank’s Jim Reid to clients on Thursday morning.
While 2-year treasuries bumped slightly on the news, yields are still moving higher in the long term with 10-year up to 4.24% and 30-year up to 4.8%.
Per the FedWatch tool from derivatives platform CME Group, 93.4% of the market is expecting the base rate to go down to 4% to 4.25% in September—down one click on the current rate. Only 6.6% of investors expect a further hold.
Goldman Sachs did have a potential counter to this seemingly foregone conclusion. Chief U.S. economist Jan Hatzius, wrote earlier this week his call is three consecutive cuts of 25 points in September, October, and December (followed by two more 25bp cuts in 2026H1), but cautioned: “A delay is possible if upcoming reports show bigger-than-expected price hikes and a rebound in the labor market.
“But a 50bp cut in September is also possible if the unemployment rate rises again in the August employment report or initial jobless claims increase from their still-low level. Even after Friday’s front-end rally, our funds rate forecast remains below market pricing, especially on a probability-weighted basis.”
Could have been two
Had the Fed learned of he “bombshell” jobs report in real time, Professor Jeremy Siegel believes the Fed would have not only cut this month, but by two clicks.
The emeritus professor of finance at The Wharton School of the University of Pennsylvania wrote in a column for WisdomTree, where he is senior economist, that the Fed may have even been tempted to lower by 50bps.
“My view following Chair Powell’s press conference last week was that Powell was too hawkish, even before we knew about Friday’s data,” Professor Siegel wrote. “I expect the first 25 basis point rate cut at the September 18th FOMC meeting, followed by identical moves in November and December, taking the fed funds rate to 3.58% by year‑end.
“A slower cadence, a “firm but flexible glide‑path”, keeps the committee’s hawks on board while acknowledging that real activity is cooling; first‑half real GDP averaged only 1.2% at an annual rate, and forward indicators such as continuing claims are inching higher.”
Professor Siegel, like many other economists, are looking to the Jackson Hole Symposium later this year for hints of an about-turn on monetary policy.
But even then, Professor Siegel—like some other notable economists—still believe Fed chairman Jerome Powell should step down before his term is up.
“The Fed’s independence has long been one of the cornerstones of a well-functioning U.S. economy,” Siegel noted last month. “But in today’s politically charged environment, that very independence could face a greater threat if Powell remains in place and the economy falters in the second half of the year … If growth slows and Powell hasn’t moved aggressively enough on rate cuts, Powell will become the scapegoat.
“In that case, a Republican-led Congress, already skeptical of the central bank, could impose serious structural restrictions, including changes to the Fed’s governing mandate or the president’s power to remove the Chair. We must remember: the Fed is a creature of Congress. It has no constitutional status, and its rules can be rewritten.”
