Latest / Markets with Megan: A Quick Financial Markets Update / Is This the Rate Cut Trigger? | S2 E074 | 09-05-25

Transcript

Is This the Rate Cut Trigger? | S2 E074 | 09-05-25 · Markets with Megan: A Quick Financial Markets Update

• 0:00
  Megan Horneman: That much-anticipated employment report that we got this morning may be opening the door for those rate cuts that everybody's looking for.
• 0:06
  Megan Horneman: It's Friday, september the 5th, and this is Markets with Megan.
• 0:09
  Megan Horneman: If you like this podcast, please subscribe.
• 0:12
  Megan Horneman: You can hit that alarm bell Also, share it with friends, family or colleagues, and we're here today to go over the economic data that we receive, and our goal here is to break it down.
• 0:22
  Megan Horneman: What does it mean for the economy?
• 0:23
  Megan Horneman: What does it mean for interest rates as we go forward?
• 0:26
  Megan Horneman: And this morning we received that much-anticipated employment report for the month of August.
• 0:31
  Megan Horneman: This is the last employment report that the Fed will get before they meet in a couple weeks here, and the data that we got suggests that they will likely cut interest rates by 25 basis points at their next meeting.
• 0:45
  Megan Horneman: Now let's dig down into the details.
• 0:46
  Megan Horneman: The US economy added only 22,000 jobs for the month of August.
• 0:51
  Megan Horneman: That brings the 12-month moving sum of jobs to the lowest that we've seen since 2021.
• 0:58
  Megan Horneman: The unemployment rate also rose from 4.2 to 4.3 percent.
• 1:04
  Megan Horneman: That's the highest unemployment rate that we've seen in four years.
• 1:07
  Megan Horneman: So this is giving the Fed that flexibility when we dig a little bit deeper and look at where the jobs have been lost.
• 1:14
  Megan Horneman: It's been in those goods-producing jobs and that's been reflected in the ISM manufacturing reports.
• 1:19
  Megan Horneman: We're seeing jobs also lost in the government side.
• 1:24
  Megan Horneman: We know that that's been a phenomenon going on this year Professional and business services, temporary workers, which have been weak for many, many months and tend to be a leading indicator for the labor market as a whole.
• 1:37
  Megan Horneman: Though, which is contrary to what we saw in the ISM services report is that private service providing jobs actually increased pretty significantly by 63,000 jobs.
• 1:51
  Megan Horneman: We also saw education and healthcare, as well as leisure and hospitality.
• 1:56
  Megan Horneman: So people are still spending on that experience and you're seeing that in the labor market.
• 2:01
  Megan Horneman: We also saw a big increase in the labor force.
• 2:05
  Megan Horneman: That increased about 436,000 jobs, and so we are seeing those cracks widen here in the economy.
• 2:15
  Megan Horneman: When you look at the underemployment rate, that rose to 8.1% from 7.9%, and that's also the highest we've seen since 2021.
• 2:25
  Megan Horneman: Remember that under-employment rate is those Americans that are working part-time, but they would prefer to work full-time, typically for economic reasons.
• 2:37
  Megan Horneman: Now this weakness in the report does carry over to some of the other indicators that we got this week.
• 2:43
  Megan Horneman: We got the JOLTS report, which gives us the job openings, or the job postings in the economy and for the first time since basically the pandemic, we saw that job postings dipped below those unemployed and that means that the labor market is coming back into a better balance and there is some potentially downside to the labor market if this continues on that way.
• 3:08
  Megan Horneman: Now, from an earnings perspective, there was no major surprise there.
• 3:12
  Megan Horneman: We got the average hourly earnings growing on a year-over-year basis at 3.7%.
• 3:18
  Megan Horneman: The expectation was for 3.8%, so we're getting a little bit of slowing there, but at 3.7% that still is a little high.
• 3:27
  Megan Horneman: If the Fed wants to get down to a 2% inflation target.
• 3:30
  Megan Horneman: That's all we have today.
• 3:32
  Megan Horneman: We think that the result of this is going to be that the Fed cuts interest rates by 25 basis points at their meeting.
• 3:38
  Megan Horneman: We still will get next week all of the inflation data the Fed's going to want to see, or at least most of it, before they do meet, to see what's going on with inflation and is the tariff spillover going into some of this data.
• 3:51
  Megan Horneman: We think, regardless of what happens, that that 25 basis points is likely to happen, but there is some chance that people are starting to price in that we may see a 50 basis point rate cut.
• 4:04
  Megan Horneman: At this time.
• 4:04
  Megan Horneman: We do not think that.
• 4:05
  Megan Horneman: In fact we've always been in the camp that we think the Fed could probably have a couple more months of waiting and seeing.
• 4:12
  Megan Horneman: This labor market data obviously gives them the flexibility to go ahead with that rate cut.
• 4:16
  Megan Horneman: But we are concerned that inflation should not be ignored and that the Fed can't forget they have a dual mandate and what's ever moving the farthest away from their targets is what they want to focus on.
• 4:28
  Megan Horneman: Unemployment obviously is a concern, but so is inflation.
• 4:32
  Megan Horneman: So that statement that they carry on and any other Fed comments that we get will be heavily scrutinized, as well as what the future interest rate path may be.
• 4:41
  Megan Horneman: Thank you very much, and if you want to see a history of our podcast you can go to marketswithmeganfm.
• 4:46
  Megan Horneman: Thanks,