Here’s what the latest U.S. unemployment trend looks like, and how markets reacted to the most recent report:
📈 What the Unemployment Data Shows
- The unemployment rate in August 2025 rose to 4.3%, up from 4.2% in July.
- Labor force participation and the employment-population ratio have stayed relatively stable month to month, though both are down somewhat over the past year.
- Nonfarm payrolls showed weak job growth (only ~22,000 jobs added in August), and recent data revisions have cut previous job growth estimates significantly downward.
- Long-term unemployment (those unemployed 27 weeks or more) is elevated (around 1.9 million), and makes up over 25% of all unemployed workers.
⚙️ How Markets Reacted
- After the weak jobs/unemployment print, bond markets rallied — short-term Treasury yields dropped, as investors increasingly believe the Fed will need to ease policy.
- Stocks had a mixed reaction: some gains in rate-sensitive sectors (like tech and growth) because a weaker labor market increases the odds of rate cuts, but also concern in more cyclical sectors over weakening demand.
- The weak jobs report increased market expectations for future rate cuts from the Fed. Analysts & firms revised forecasts to anticipate easier monetary policy in coming Fed meetings.
🔍 What This Suggests Going Forward
The elevated unemployment rate plus weak job additions suggest that the labor market is cooling. Because the jobs picture is one of the Fed’s two mandates (the other being inflation), these trends push monetary policy toward being more accommodative. Markets are likely to expect:
- Further rate cuts (but likely gradual, depending on inflation data)
- Continued cautious investor behavior — sectors dependent on strong demand may be under pressure
- Increased volatility around economic releases (jobs, inflation) as they’ll be seen as key indicators for Fed actions
Here are recent estimates showing how likely markets think further Fed rate cuts are, based on futures & other data:
📊 Cut Probabilities
| Timing / Meeting | Implied Probability of 25 bps Cut | Implied Probability of 50 bps Cut / Larger Cut |
|---|---|---|
| September Fed meeting | ~ 96% that the Fed will cut by 25 bps. (CBS News) | ~ 4-12%, depending on the source. (Morningstar) |
| October meeting | ~ 86% by some futures traders. (Reuters) | Smaller chance; often seen as less likely for a bigger move. (Morningstar) |
| By end of 2025 | Markets are expecting multiple cuts; total cuts priced in are ~70 bps. (Reuters) | But large, back-to-back cuts (50 bps each time) are seen as less likely. (Morningstar) |
Here’s a summary of how market expectations (via CME FedWatch and related tools) for Fed rate moves have shifted recently — especially in light of weak jobs + inflation data:
🔍 Recent Probability Shifts
| Meeting / Timeframe | Current Probabilities | What It Was Before | Notes on Movement |
|---|---|---|---|
| September 2025 Fed meeting | ≈ 95-96% chance of a 25 bps cut (Kiplinger) | A week or two ago, somewhat lower (mid-80s). (Kiplinger) | Increase driven by weak labor data, inflation signs, and revised payroll numbers. |
| Potential for 50 bps cut in Sept | ≈ 5-7% (~6.6%) (Kiplinger) | Previously nearly zero or very low. (Kiplinger) | Seen as unlikely but rising slightly — a “dovish surprise” scenario. |
| End of 2025 (Dec meeting) | ~ 75-80% chance that target rate will be ~ 3.50-3.75% (i.e. another cut or two beyond September) (Investing.com) | Was lower earlier in the summer; markets have been shifting toward more cuts priced in. (Investing.com) | Reflects growing consensus that loosening is likely as economic data cools. |
⚙️ Interpretation
- These shifts show markets rapidly adapting to softer economic signals — especially weak job growth and downward revisions.
- The nearly-certain expectation of a 25 bps cut in September suggests that new data is no longer enough to shift odds away from that outcome.
- The possibility of a larger cut (50 bps) has increased slightly, but remains low — viewed more as a potential tail-risk if conditions deteriorate further.
- By late 2025, markets expect more easing (i.e. one or more additional cuts), though how many and how big depends heavily on inflation and jobs trajectories.
Evergreen Financial News 