In the wake of Friday’s jobs report showing the labor market deteriorating unexpectedly sharply, the question on the minds of investors and economists is no longer whether the Federal Reserve will cut interest rates at its next meeting in September, but how steeply it will cut them.
The jump in the unemployment rate in July to its highest since 2021 could give the Fed motivation to cut its benchmark fed funds rate faster than previously expected. Several forecasters changed their predictions for the central bank’s next moves, calling for three quarter-point rate cuts by the end of the year instead of two.
Traders are projecting an even more aggressive path. Financial markets late Friday were pricing in 1.25 percentage points of rate cuts by the end of 2024, up from three-quarters of a point the day before, according to the CME Group’s FedWatch tool, which forecasts interest rate movements based on fed funds futures trading data. The likelihood …