Fed Rate Cut Machine Starting Up: What the Weakening Jobs Report Really Means

The U.S. labor market just sent a flashing red signal. August employment data shows working hours, wage growth, and hiring have all cratered back to pandemic levels—basically, the recovery narrative just hit a wall.

Here’s what happens next: A 25bp rate cut in September is locked in. But if inflation disappoints even slightly, expect a more aggressive 50bp move. Mizuho’s calling it straight—the Fed has no choice.

The Plot Twist Nobody Expected

Remember when Jerome Powell swore the economy was resilient? Turns out the Fed’s inflation forecasts were dead wrong, and their rosy unemployment predictions are looking increasingly shaky. They were too bearish on prices but way too bullish on job strength. Classic central bank whiplash.

The Easing Cycle Playbook

Expect a sustained cutting cycle aimed at bringing rates down to the Fed’s “neutral zone” (~3%) by March 2026. New leadership will likely push even harder—potentially dragging rates closer to 2%. It’s full stimulus mode.

The catch? If inflation suddenly resurrects itself, stimulus gets yanked back just as fast. This isn’t the end game; it’s the beginning of a messy cycle.