Isn't as good

The job market isn't as good as we thought. There might be an upside for Trump.

Emerging signs of an economic slowdown could help spur the Federal Reserve to cut rates to ease off the economy as soon as September.

By Victoria Guida

The odds that President Donald Trump will get an interest rate cut soon just went up. But not for the reasons he wants.

The U.S. economy added 73,000 jobs in July, according to new data from the Labor Department, a weaker number than economists were forecasting. Revisions also point to a much weaker job market during the second quarter of the year than previously reported, suggesting elevated rates and the president’s trade war are beginning to take a toll.

Those emerging signs of an economic slowdown could help spur Federal Reserve Chair Jerome Powell to cut rates to ease off the economy as soon as September.

The government now estimates that employment only increased by 33,000 total over the months of May and June, 258,000 fewer jobs than previously estimated. Those are massive revisions that the Labor Department acknowledged were “larger than normal.”

The jobs report follows data earlier this week showing that spending by households and businesses slowed during April, May and June. Taken together, the data paints a picture of a slowing economy.

“What’s more concerning is that with negative impact of tariffs only just starting to be felt, the coming months are likely to see even clearer evidence of a labor market slowdown,” said Seema Shah, chief global strategist adt Principal Asset Management.

Trump has been relentlessly pressing Powell to lower rates, arguing that it would lower interest costs for the government and bring down mortgage rates. Powell, however, has been navigating a complex matrix of economic effects from the president’s tariffs as well as general policy uncertainty. Fed officials are closely tracking whether import taxes reignite inflation — there are early signs they have begun to push up prices — and the extent to which they are slowing the economy.

The Fed is not equipped to deal with both those risks simultaneously but has kept rates elevated as a defensive posture against tariff-induced inflation, which had otherwise mostly cooled back to 2 percent.

There are signs that sentiment within the Fed is beginning to shift. Two board members, Christopher Waller and Michelle Bowman, dissented against a decision to keep rates unchanged Wednesday, both citing downside risks to the labor market.

The latest employment report suggests those risks are looking more well-founded. Investors now see a 75 percent probability of a September rate cut, according to CME Group.

Still, hiring is slowing down alongside Trump’s immigration crackdown, which has kept the jobless rate low even as the labor market has weakened. Unemployment ticked up to a still-healthy 4.2 percent in July.

The central bank’s rate-setting committee will get more inflation and employment data before it meets again in September.

“The burden of proof has shifted and continued labor weakness could force the Fed’s hand despite inflation concerns,” said Alexandra Wilson-Elizondo, global co-CIO of multi-asset solutions at Goldman Sachs Asset Management.