Interest rate cut expectations heat up again! Federal Reserve Governor Cook says non-farm payrolls indicate an "important turning point"
Federal Reserve Governor Cook stated that the non-farm payroll data for July fell short of expectations, which may mark an "important turning point" for the U.S. economy and Federal Reserve policy. He pointed out that the recent cooling of the job market suggests that the timing for the Federal Reserve to cut interest rates is approaching, with the possibility of more than two rate cuts within this year. The interest rate futures market shows that expectations for Federal Reserve rate cuts have risen significantly, with the probability of a rate cut approaching 90%
According to the Zhitong Finance APP, Lisa Cook, a Federal Reserve governor with permanent voting rights on the Federal Open Market Committee (FOMC) monetary policy during her term, stated on Wednesday that the non-farm payroll report for July is indeed "concerning" and that its data may signify an important turning point for the U.S. economy and Federal Reserve policy. "These revisions often occur near significant turning points," Cook said on Wednesday at a seminar hosted by the Boston Fed.
It is reported that before Cook made her dovish remarks regarding the Federal Reserve's monetary policy expectations, several Federal Reserve officials had already released dovish expectations for interest rate cuts. Mary Daly, a voting member of the FOMC in 2027 and president of the San Francisco Fed, stated on Monday local time that given the increasing signs of a weakening U.S. non-farm employment market and the absence of sustained inflation driven by tariff policies, the timing for the Federal Reserve to restart interest rate cuts is approaching, and it is more likely that the Federal Reserve will need to cut rates more than twice this year. 2026 FOMC voting member Neel Kashkari stated that the U.S. economy is slowing down, and he expects two rate cuts by the end of this year, but tariff policies remain a "significant uncertainty."
The non-farm employment data released last week indicated a significant cooling of the U.S. labor market in recent months. According to data from the U.S. Bureau of Labor Statistics, only 73,000 jobs were added in July, far below economists' expectations; meanwhile, the non-farm employment numbers for the previous two months were unexpectedly revised down by nearly 260,000, with a downward revision of up to an unprecedented 90%. The latest unemployment rate rose from 4.1% in June to 4.2%.
Just two days before the release of this data, the Federal Reserve's monetary policy decision-makers maintained the benchmark interest rate unchanged due to concerns about the actual impact of the Trump administration's tariff policies on inflation. Federal Reserve Chairman Jerome Powell stated at a press conference at that time that the stability of the labor market also bought the Federal Reserve more time to gather information about the impacts of tariffs before adjusting interest rates.
Pricing in the interest rate futures market shows that traders are heavily betting on the restart of the Federal Reserve's interest rate cut cycle, with the probability of a rate cut next month approaching 90%—up from less than 40% before the non-farm report—and betting on at least two rate cuts by the end of the year, even wagering on consecutive 25 basis point cuts in September and October, along with a 25 basis point cut in December, totaling three cuts of 75 basis points by the end of the year.
In response to this weak employment report, Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, bluntly stated: "This report provides important evidence for the Federal Reserve to adjust interest rates in September, so the only question is how much the adjustment will be. The likelihood of a 50 basis point cut in September is continuously increasing—if the weakness in the labor market worsens, or if job additions continue to fall below the 100,000 mark."
Federal Reserve decision-makers will hold their next monetary policy meeting on September 16-17.
Cook also stated that the "persistent uncertainty" faced by businesses is producing effects similar to taxation. She noted that business leaders report needing to spend a significant amount of time dealing with uncertainty. "This is what economists call deadweight loss," she said Susan Collins, President of the Boston Federal Reserve, expressed agreement at the same discussion, stating that "a tax of uncertainty" is the most concerning issue across various industries.
Collins pointed out that uncertainty is often blamed for dragging down business investment, and it is also affecting pricing decisions.
"I have also heard people talk about how uncertainty leads business leaders to take a wait-and-see approach for a long time when making pricing decisions, especially after experiencing a period of high inflation," Collins said.
It is understood that as a member of the Federal Reserve Board, Lisa Cook has a permanent voting right on the monetary policy decisions of the Federal Open Market Committee (FOMC) during her term. All sitting Federal Reserve governors have the right to vote at each FOMC meeting until their 14-year term expires or they leave office early, which is why the U.S. President Trump, who is eager for interest rate cuts, is in a hurry to nominate a governor to fill the vacancy left by the soon-to-depart Federal Reserve governor Quarles. The Federal Reserve Act stipulates that all seven governors are permanent voting members of the FOMC, while the 12 regional Federal Reserve Bank presidents only have voting seats on a rotating basis
