Wall Street Week Ahead Markets Bet on Fed Cuts but Shaky Jobs add Drama
Wall Street Week Ahead as US unemployment hits highs, inflation nears target, and Fed rate cuts loom while CPI data could shape easing.
Hadar.Goldberg
Hadar Goldberg is a talented financial journalist with a strong passion for analyzing the stock market. She has a deep understanding of financial markets and is skilled at conducting research and analysis to uncover valuable insights for her readers. Hadar is known for her ability to explain complex financial concepts in a clear and concise manner.
Sep 07 2025
Interest Rates will Fall, but that doesn't mean Stocks will Rise
The U.S. unemployment rate is at its highest level since the coronavirus crisis, inflation is close to target, and the probability of a rate cut stands at 98%. But it’s not certain that this will be enough to offset weakness in the labor market. Ahead, the Consumer Price Index (CPI) will be published on Thursday, and only if it avoids surprising to the upside will the path to monetary easing be fully open.
The labor market has been signaling for months that its trend is shifting, but last week’s Nonfarm Payrolls (NFP) report turned subtle hints into a loud warning. The August employment report, released Friday, showed a labor market in crisis: just 22,000 new jobs were added, compared to forecasts ranging from 40,000 in conservative scenarios to 90,000 in more optimistic ones. Not only did the figure miss expectations, but there were also sharp downward revisions to previous months, making June the first month since the pandemic in which total jobs declined.
Meanwhile, the unemployment rate climbed to 4.3%, and the ratio of unemployed workers to job vacancies fell below 1 for the first time in over two years. This means the labor market has shifted from a shortage of workers to an excess of job seekers. Wage growth, once a key driver of inflationary fears, also slowed to 3.7% annually. This easing of wage pressures could further convince the Fed to cut rates.
However, the headline figures tell only part of the story. Excluding jobs in health and social care—lower-paying sectors prone to seasonal fluctuations—there was actually a decline of roughly 25,000 jobs across the rest of the economy. Since May, an average of only 26,000 jobs have been added monthly, compared with over 120,000 earlier this year. While this may strengthen the case for Fed rate cuts, it also paints a worrying picture of a labor market facing structural weakness. A 25-basis-point cut—or even double that—may not be enough to support a turnaround.
Three Interest Rate Cuts by Year-End carry a 65% Probability
As expected, markets quickly digested the data. Futures now price in nearly a 100% chance of a rate cut at the upcoming Fed meeting in ten days. Moreover, the probability of three cuts by year-end has jumped to about 65%, sharply higher than just a week ago.
Despite this, equities haven’t rallied on the news. The S&P 500 gained only 0.3% last week and closed Friday down 0.3%. The Dow Jones lost 0.3% over the week and 0.5% on Friday, while the Nasdaq rose 1.1% during the week but still ended Friday down 0.1%. If investors expected euphoria from weak employment data, they were instead met with hesitation, raising the question of whether one or several rate cuts will be enough to reverse labor market weakness.
What do Analysts Think?
Analysts largely agree that the U.S. rate cut is imminent, likely at the upcoming Fed meeting. Futures markets are pricing in an almost certain 0.25% cut, with consensus leaning toward three cuts by year-end. Yet, doubts remain about whether this will be sufficient.
This week economic focus centers on macro data that could set the tone for the Fed’s decision. Chief among them is Thursday’s CPI release. Forecasts point to annual inflation rising to 2.9% from 2.7% in July, suggesting mounting price pressures at a time when markets are betting on easing. On a monthly basis, inflation is expected to rise 0.3% versus 0.2% in July, driven mainly by higher energy and housing costs. The core CPI, excluding food and energy, is forecast to remain sticky at 0.3%—raising doubts about the Fed’s ability to steer inflation back to its 2% target.
Before that, Wednesday brings the Producer Price Index (PPI) for August, expected to increase 0.3% month-over-month. While softer than July’s 0.9% surge, even this moderation points to lingering inflationary pressures, especially at the wholesale level. The Fed closely watches this data, as producer price trends often filter into consumer prices. In an environment where markets are on edge for a policy shift, even secondary data points could tip the balance.
Bond markets will also be closely watched this week. On Wednesday, a 10-year Treasury auction will be held, with the previous yield at 4.255%, a relatively high level signaling concerns over sustained higher rates or widening fiscal deficits. On Thursday, a 30-year auction follows, benchmarked against the prior 4.813% yield. Investors will be watching demand closely to gauge whether markets are beginning to price in rate cuts, or whether worries about U.S. fiscal discipline continue to keep yields elevated.
While rate cuts seem nearly certain, the bigger question remains - will they be enough to lift markets and restore confidence in a labor market showing signs of stress?
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Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.
