Markets Eye Fed Cut as Jobs Miss, ISM Slows

Markets Bet on September Rate Cut After Weak Economic and Jobs Reports

The likelihood of a Federal Reserve interest rate cut at the upcoming September FOMC meeting surged sharply last week, after the latest jobs report dramatically missed expectations and added to a growing body of data pointing toward softening economic momentum. Markets are now pricing in a 90.4% probability of a 25-basis-point rate cut at the Fed’s September 17 meeting, according to the CME FedWatch tool—up from just 63.3% a week prior.

Jobs Miss Lights a Fire Under Bond Bulls

The July employment report showed just 73,000 jobs added, well below economists’ expectations of 110,000. Adding to the disappointment, significant downward revisions to prior months subtracted a total of 258,000 jobs from the May and June figures. The data painted a clear picture: the U.S. labor market is weakening, and the Federal Reserve may be compelled to act sooner than expected.

Bond markets responded decisively. The 30-Year T-Bond futures surged above technical resistance, posting their strongest rally in over a month. The December contract (ZBU25) climbed toward key resistance near 115 23/32. A confirmed breakout above this level would open the door to a technical upside target near 121.00.

In parallel, the 10-Year T-Note futures (ZNU25) also surged, breaking out from consolidation and trading near multi-week highs. Markets now appear convinced that the Fed’s long-standing hawkish posture may finally give way to a pivot in September.

Commodities Stumble as Growth Worries Mount

While Treasuries found fresh bids, commodity markets were not so lucky. The Bloomberg Commodity Index (AHU25) posted a massive technical breakdown on July 31, slicing through key support and entering into a bearish consolidation pattern. The breakdown aligns with weakening demand expectations and rising macro uncertainty.

With bond yields falling and commodity prices under pressure, traders are increasingly bracing for a slower economic environment in the back half of 2025.

ISM Services Data Raises New Concerns

The latest ISM Services PMI report added to the narrative of economic fragility. U.S. services sector activity slowed in July, with the index dipping to 50.1 — down from 50.8 in June and below expectations of 51.5. The data continues to signal sluggish growth, and survey respondents cited seasonal and weather-related challenges impacting business performance.

While the Business Activity Index still showed growth, it slowed from the prior month. New orders also expanded more slowly, and the Employment Index contracted for the fourth time in the last five months — a concerning trend for labor market watchers.

Meanwhile, prices surged, with the Prices Index hitting its highest level since October 2022. This combination of weakening employment and rising input costs will be closely watched by the Fed as it weighs its next move.

Fed Officials Still Sound Hawkish—For Now

Despite the market’s dovish pivot, Fed Chair Jerome Powell remained cautious in his messaging. Speaking last week, Powell noted the labor market was “broadly in balance and consistent with maximum employment.” However, he acknowledged that U.S. companies and consumers—not foreign exporters—are shouldering most of the cost from tariffs, which could push inflation higher in the future.

Adding to the uncertainty, the Fed’s preferred inflation metric, the Personal Consumption Expenditures (PCE) Index, rose in June. Headline PCE ticked up to 2.6% from 2.3% the previous month, while core PCE moved higher to 2.8%. These readings initially reduced the odds of a September rate cut mid-week, with CME FedWatch showing the probability falling as low as 39% before the jobs report reversed that trend.

Market Pricing vs. Fed Messaging

The evolving rate cut probabilities underscore the ongoing disconnect between market expectations and the Fed’s public stance. While Powell signaled the central bank is “well-positioned to respond to any deterioration in economic conditions,” he has not definitively committed to a rate cut.

Still, the combination of labor market softening, slowing demand, and rate-sensitive sectors showing cracks has pushed market sentiment firmly toward expecting easing. Should the upcoming CPI and PPI reports confirm a moderation in inflation, that could cement the rate cut case heading into the September 17 decision.

Key Takeaway

The bond market has made its move. The commodity market is bracing for fallout. And the Fed—facing political pressure, economic fragility, and stubborn inflation—is approaching its September meeting at a critical juncture.

For now, all eyes remain on incoming data and whether the Fed’s resolve to fight inflation will hold in the face of mounting recession signals.

📊 Data Source: CME FedWatch Tool |