Fed Rate Cut Certainty Grows as Markets Eye Inflation Data This Week

TLDR

Table of Contents

Stock futures rose Monday morning ahead of key inflation data and the Federal Reserve’s September 16-17 meeting
August jobs report showed only 22,000 jobs added, well below expectations of 76,500, with June-July numbers revised lower
Markets now price in 100% chance of Fed rate cut in September, with 67% probability of three cuts this year
Core inflation expected to hold steady at 3.1% in August, with focus on tariff impacts on prices
Healthcare sector accounts for more job growth than all other sectors combined over past three months

Stock markets opened higher Monday morning as investors prepared for a week of crucial economic data that could determine the size of the Federal Reserve’s expected rate cut later this month.

Futures on the Dow Jones Industrial Average gained 0.2%, while S&P 500 futures rose 0.3% and Nasdaq 100 futures climbed 0.4% in early trading. The gains came after all three major indexes fell Friday following a disappointing jobs report.

The August employment data showed the U.S. economy added just 22,000 jobs, far below economist expectations of 76,500. The report also revised June and July job numbers 21,000 lower, painting a picture of a rapidly cooling labor market.

Jobs Market Shows Clear Weakness

The weak employment numbers have shifted trader expectations dramatically. According to CME’s FedWatch tool, there is now a 100% probability the Fed will cut rates at its September 16-17 meeting.

JUST IN: 🇺🇸 September Fed rate cut odds surge to 100%. pic.twitter.com/ec4b91MKUE
— Whale Insider (@WhaleInsider) September 8, 2025

Markets are pricing in a 67% chance of three rate cuts this year, up from 40% just one week ago. The only remaining question appears to be whether the Fed will cut rates by 0.25% or 0.5% in September.

Deutsche Bank strategist Jim Reid noted that investors would need to see “pretty weak inflation this week” for the Fed to consider a larger half-point cut. Currently, markets assign only a 10% probability to that scenario.

The labor market data reveals deeper concerns beyond the headline numbers. BlackRock’s Rick Rieder pointed out that healthcare accounts for more than all job creation over the past three months.

When excluding healthcare jobs, total employment growth has turned negative for the first time in 25 years outside of a recession. This represents a fundamental shift in the economy’s job-creating capacity.

Inflation Data Takes Center Stage

This week’s inflation reports will be critical for Fed decision-making. The producer price index releases Wednesday, followed by the consumer price index on Thursday.

Economists expect core consumer prices to rise 3.1% year-over-year in August, matching July’s reading. The monthly increase is forecast at 0.3%, which would represent an uptick from previous readings.

Wells Fargo economists noted that July’s inflation data showed tariffs are not the only challenge preventing the Fed from reaching its 2% target. Sticky services inflation combined with rebounding goods prices has stalled the disinflationary trend of recent years.

The focus will be on how new tariff policies are affecting consumer prices. Pepperstone strategist Michael Brown wrote that while the Fed appears willing to look past one-time tariff effects, persistent inflation pressures would likely limit any rate cut to 0.25%.

Oil prices jumped around 2% Monday morning, with Brent crude reaching $66.80 per barrel after OPEC agreed to increase production at a Sunday meeting. The 10-year Treasury yield rose to 4.090%, while the U.S. Dollar Index fell 0.1% to 97.68.

Fed Chair Jerome Powell has outlined the case for rate cuts, citing job market weakness and risks of further deterioration. The unemployment rate stands at 4.32%, but the velocity of job creation has slowed dramatically across most sectors outside healthcare.

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