No matter where you stand on the political spectrum, everybody seems to agree the August jobs report was nothing but bad news.
On Friday, the U.S. Bureau of Labor Statistics published the country’s latest batch of employment figures, and numbers are pretty much down across the board. Job growth is slowing rapidly, wage growth is cooling, and unemployment is on the rise.
If you’re an economist, this paints a pretty depressing picture. But if you’re an investor, a lousy jobs report is actually kind of good news. Why? Because just about everybody and their mom agrees that the Federal Reserve will finally need to cut its borrowing rates in September.
To explain why, let’s zoom out and take a broader look at the August jobs report and how it influences rate decisions.
Why Was the August Jobs Report Bad?
The August jobs report had a few depressing figures in it. But the big one that market watchers really jumped on was non-farm payrolls. This is the number that represents the net change in the number of employed people in the U.S. over the last month (excluding farm workers and certain government employees).
Even though job growth has been slowing during 2025, there was still a consensus we’d see a net gain of up to 80,000 jobs in August. Instead, we only clocked in at 22,000. That translates to a huge slowdown in hiring, which is a key indicator of overall economic health.
And that’s not even the worst of it.
This month’s report also made significant revisions to jobs data published earlier this summer. It turns out June’s non-farm payroll headcount was wrong, and officials changed the figure from a modest gain to a net loss of 13,000 jobs. That’s the first decline the U.S. has seen since December 2020.
In fairness, July’s figures were also corrected to represent a slightly larger gain than it was originally reported. But we’re still looking at a steady downward trend that’s far more depressing than analysts had anticipated.
Next, we’ve got unemployment.
According to the August jobs report, unemployment is now sitting at 4.3%. That’s the highest unemployment level we’ve seen since October 2021. It’s worth pointing out that 4.3% is still relatively low in the grand scheme of things. In 2010, U.S. unemployment was flirting around the 10% mark.
Even so, no one can argue against the fact that America is facing an incremental rise in unemployment. That means our labor market’s long-standing tightness is really starting to unravel, which is a key concern for the Federal Reserve.
How Does the Jobs Report Affect Federal Reserve Rates?
The U.S. Bureau of Labor Statistics and its monthly job reports have a huge effect on the Fed and its baseline federal funds rate. And although a negative jobs report is bad news for the U.S. economy, it’s actually good news for the Fed and its ability to influence economic activity.
You see, the Fed has a dual mandate to promote maximum employment and stable prices (which translates to low inflation). For the last few years, steady employment rates have meant nobody over at the Fed has lost sleep over payroll numbers. Instead, the sole focus has been inflation.
Because the U.S. labor market has been really tight and the economy has been running hot for the last five years or so, there’s been a high risk wages would spiral. That’s why the Fed has intentionally been trying to slow down the economy using artificially high borrowing rates.
But the August jobs report indicates wage growth is finally slowing as the labor market has loosened. That’s disinflationary, and demonstrates the Fed’s actions have gotten us back on track to hit 2% inflation (which most central bankers agree is the sweet spot).
So now that Fed members can rest easy knowing inflation is no longer issue number one, they can shift focus to stimulating the jobs market. In other words: They’ve got the green light to cut borrowing rates without having to worry about reigniting inflation.
Will the Fed Cut Rates in September?
The general consensus is: Yes, the Fed will cut rates in September
Market watchers have spent the entire summer speculating a rate reduction would be on the horizon when the Fed meets later this month. But thanks to August’s rotten jobs report, CME’s FedWatch is now charting a 100% probability the baseline federal funds rate will decrease on Sept. 17.
If the rate is cut, you can expect a 25-basis-point reduction (or 0.25%). That’d create a new rate target of 4.00–4.25%, with the effective (actual) rate floating somewhere in the middle. This should go a long way toward stimulating economic activity, which is why the stock market initially rallied off the back of Friday’s crumby jobs report.
Think that’s good news? It gets better.
There are quite a few analysts expecting the Fed to continue along this trajectory with two more subsequent rate reductions before pressing pause. That means we could start the first quarter of 2026 with a policy rate target of 3.25-3.5%.
For investors with shares in growth-oriented companies, this is definitely the best news of the year. But before you uncork the champagne, it’s important to remember there’s another variable at play here.
Committee members are also going to want to analyze the August Consumer Price Index (CPI) report. This’ll be released a couple of days before the Fed’s Open Market Committee meets on Sept. 16-17, and will clarify where America’s inflation rate is sitting at.
Right now, analysts are forecasting the CPI will fall somewhere around the 3% mark for August. This is a bit higher than the Fed’s target rate of 2%. But it'd take a lot more than 3% inflation to overshadow August’s pitiful jobs report, so everybody’s still incredibly optimistic.
So, mark your calendars. It looks like Sept. 17 is going to be a big day for the markets.
On the date of publication, Nash Riggins did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
