Debate over the size of the Fed’s interest rate cut in September after the labor market report

On Friday, traders in the Fed funds futures market wrangled over the possible extent of a rate cut by the US Federal Reserve in September after the August jobs report failed to provide a clear direction.

Chances of a big The 50 basis point rate cut fluctuated, rising to 59% and then falling back to 45% after the monthly employment report, according to the CME FedWatch ToolOn Thursday the probability was 40% and a week ago it was 30%.

The probability of a 25 basis point cut was 55%, compared to 60% a day earlier and 70% a week ago.

The Labor Department’s August employment report was mixed. Nonfarm payrolls rose 142,000, an acceleration from July’s 89,000, but fell short of the consensus of +160,000. The July report was revised down from +114,000. The unemployment rate for August fell to 4.2%, as expected, from 4.3% in July.

Economists and market experts commented on the actions of monetary policymakers.

“The Fed needs to cut rates. I would do that with a 50 basis point cut in September because it’s clear that a 50 basis point cut is needed this fall,” said Betsey Stevenson, former chief economist at the U.S. Department of Labor, on X (formerly Twitter). “And they’re weighing the risks: right now the risk to the labor market is the greatest. Cut 50 now and then wait to see if there are cuts later.”

The Fed meeting is scheduled for September 17 and 18.

“I think the Fed is going to 25 because they are known to lag and the (lagging) data is not overly concerning,” said Cullen Roche, founder and CIO of Discipline Funds, on X. “Personally, I would go to 50 because they have (mostly) beaten inflation and the macro trends indicate more downside than upside risk to the economy. What’s your guess?”