U.S. economy is worse than thought with 1.2 million fewer jobs — what that means for the Fed
A construction worker is shown on the job site at a multi-unit residential housing project in Encinitas, California, U.S., July 28, 2025.
Mike Blake | Reuters
With job growth tanking and the economy wobbling, pressure is on for the Federal Reserve to start lowering interest rates, with markets now expecting a cut at each of the three remaining meetings this year.
The Bureau of Labor Statistics reported Tuesday that the economy added 911,000 fewer jobs than previously reported for the year preceding March 2025. Downward revisions since the cutoff date in that report suggest that the reduction in payroll growth has been actually around 1.2 million for the past 16 months.
That’s a number sure to get the Federal Open Market Committee’s attention when it meets next week and could add fire to President Donald Trump’s repeated assertions that the central bank has been “too late” in making policy adjustments.
“Had Fed officials had that data available in real time, policy rates would be lower today,” wrote Citigroup economist Andrew Hollenhorst, referencing the BLS “benchmark” payrolls revisions.
Hollenhorst said the data actually “could justify” a jumbo half percentage point cut when the FOMC releases its decision Sept. 17. However, he expects Chair Jerome Powell “will have an easier time building consensus around a [quarter-point] rate cut next week, with signals that rate cuts will continue at upcoming meetings, including potentially in October.”
Market expectations have shifted notably as trouble signs have built around employment.
Traders now are not only pricing in a 100% chance that the Fed lowers by a quarter point next week, they also are allowing for a slight chance of a half-point reduction. They now firmly see cuts at each of the three remaining meetings, according to the CME Group’s FedWatch tool. The gauge uses prices on 30-day fed funds futures contracts to determine market-implied odds for rate moves. Just a week ago, markets were assigning only a modest chance for three cuts this year.
Watching the numbers
While the Fed is not bound by the market, it closely monitors rate expectations as part of its data dashboard.
“The U.S. economy barely has any jobs right now and it’s been that way for a long time,” said Heather Long, now the chief economist at Navy Federal Credit Union and prior to that a Fed reporter for the Washington Post. “The Federal Reserve needs to cut interest rates in September, October and December, and the White House needs to quickly finalize a trade deal with China. Businesses aren’t going to invest and hire more people again until there is more certainty.”
To be sure, Fed officials may feel they can be deliberate in their actions as the economic data are still muddy and subject to the changing winds from Trump’s tariffs.
Moreover, there’s a chance that current data overstate the labor market’s troubles.
For instance, Goldman Sachs disputed the benchmark payroll revisions, saying the total reduction based on the firm’s proprietary model and high-frequency data is more like 550,000, or a bit lower than the year before. The firm further said that the BLS revisions “provide limited information about the current state of the labor market” thought it acknowledged that conditions have “softened materially.”
However, the report follows news that nonfarm payrolls rose just 22,000 in August. Moreover, a New York Fed survey found a record low in sentiment among workers who believe they could find another job if they lost their current position. Other surveys also have showed heightened worries.
From the White House, the data reignited calls for rate cuts.
“Much like the BLS has failed the American people, so has Jerome ‘Too Late’ Powell — who has officially run out of excuses and must cut the rates now,” White House press secretary Karoline Leavitt said in a statement.
