Until Friday, analysts had little confidence that the U.S. Federal Reserve was about to deliver an interest rate cut, but last week’s revisions to labor market data have led many to bet in favor of Jerome Powell cutting at the Fed’s next meeting in September.

On Friday the Labor Department reported payrolls grew by just 73,000 last month, well below forecasts for about 100,000. It also revised down estimates for May and June, by a cut of 258,000.

With the average gain over the past three months now averaging only 35,000, the health of the labor market is in considerably worse shape than previously believed. Full employment is half of the Fed’s dual mandate—so many now expect action (in the form of cheaper money) to spur economic activity to ensure jobs do not take any further hit. Analysts now expect the revisions to at last deliver the cut the Oval Office has been pushing for,

A furious President Trump dismissed Dr. Erika McEntarfer, the Commissioner of the Bureau of Labor Statistics (BLS), for the revisions to the employment numbers. As markets open today, investors are still digesting the ramifications of the data which suggests tariffs are biting harder than previously hoped. On top of that, speculators will also be bracing for further volatility as Trump’s latest tariff deadline—August 7—creeps closer.

On top of that, analysts will also be working through the implications of the resignation of Adriana Kugler, one of the voting members of the Federal Open Market Committee (FOMC). This presents an opportunity for the president to appoint a member more open to his agenda of a lower base rate—further bolstering the hopes of analysts looking for a path toward interest normalization.

Before markets open in New York this week, the S&P 500 was down 1.6% at Friday’s close, and the Nasdaq down 2.24%. In Europe, London’s FTSE 100 is up a mild 0.3% and Germany’s DAX up 1.1%. S&P futures were up 0.65% this morning, suggesting that some investors are buying the dip.

Over in Asia—where analysts have been given little hope for an imminent deal with China or India—Japan’s Nikkei 225 was down 1.25% while India’s Nifty 50 is up a respectable 0.65%.

Looking ahead, analysts are piling in on the belief that Powell will cut at the FOMC’s next meeting in September, and may even drop a hint about a change of course this month during the Jackson Hole Symposium.

Volumes in the CME’s 30 Day Federal Funds futures and options tripled between July 31 and August 1 (the day the labor data was altered), up from 536,563 on Thursday to near-1.6 million a day later. The price currently equates for a base rate in the region of 3.75%—representing a cut of two measures from the Fed.

Cut likelihood

A surprise downgrade to the economic outlook isn’t the scenario in which investors had hoped for a cut: Many had hoped stable enough inflation would have given the FOMC confidence to lower and support economic activity, as opposed to a forced reduction demanded by negative headwinds.

But, as Deutsche Bank’s Jim Reid noted to clients this morning, the broader picture also suggests cuts: “The resignation of Fed Governor Kugler on Friday has created an opportunity for President Trump to appoint a new board member. This individual could potentially be groomed as a successor to Chair Powell or, at the very least, represent another dovish voter. While last week’s FOMC vote was 9-2 against a rate cut, it’s worth noting that the two dissenters—Waller and Bowman—were both appointed during Trump’s first term.”

“The significant revisions in Friday’s payroll release have also increased the likelihood that other members may reconsider their hawkish positions. The probability of a rate cut in September surged to 87% on Friday, up from around 40% before the payroll data was released, and market pricing for cuts by year-end rose from 18 basis points to 41bps.”

Indeed, Macquarie wrote Friday it had pulled forward its timeline for a cut as a direct result of the July employment report.

David Doyle, Macquarie’s head of economics, wrote: “While we don’t see significant further weakness in the labor market, the results of this report are likely to shift the FOMC’s assessment of the balance of risks to the outlook. While a September cut has become more likely, it is not a certainty. The eventual decision will hinge on incoming inflation and labor market developments.”

Even before the disastrous jobs rate announcement Chairman Powell had warned about the Fed’s need to balance inflation as close to 2% as possible, without squeezing employment from a monetary policy stance that was too tight.

In his post-meeting press conference only a week ago, Powell said: “We are attentive to risks on the employment side of our mandate. In coming months, we will receive a good amount of data that will help inform our assessment of the balance of risks and the appropriate setting of the federal funds rate.” Powell mentioned possible “downside risks” to the job market no fewer than six times.

But Bernard Yaros, lead U.S. economist at Oxford Economics, countered in a note this weekend: “This week’s events, namely the July jobs report, were the biggest challenge to our longstanding forecast assumption around monetary policy, but we’re not yet ditching our call for a resumption of rate cuts to occur in December.

“Joblessness ticked higher, but reading the tea leaves from labor force flows and initial claims, there’s little reason to expect a sharp increase in the unemployment rate over the next months.”

Here’s a snapshot of the action prior to the opening bell in New York: