U.S. Labor Market Hits Stall Speed, 50bps Rate Cut On The Table In September
There is no longer any doubt that the Fed is badly behind the curve as the U.S. labor market hits stall speed.
On Wednesday I wrote:
“The trend in US labor market data is very clear at this point. I believe the question is starting to become whether the Fed is too far behind the curve on labor market deterioration to be able to turn the tide before recession becomes inevitable.
A 25bps rate cut from the Fed in two weeks is now a 99% probability, but another conspicuously weak monthly non-farm payrolls report on Friday (with downward revisions to June and July numbers) will open the door to a deeper conversation about the possibility of a 50bps cut.”
This morning’s August NFP report was indeed conspicuously weak, with August payrolls barely changed at a paltry +22,000, and June now being revised to a loss of 13,000 jobs.
Regardless of what the talking heads in Washington D.C. say, the trend in the employment data since the beginning of 2025 is very clear; the unemployment rate is rising and nonfarm payroll employment is falling.
In fact, today’s data was so weak that sectors of the economy that Trump 2.0 has touted as being their focus continue to exhibit signs of moving into recession:
There are signs of deterioration all across the economy for those who are paying attention; delinquencies are rising, travel & leisure spending is falling, and there is an overall growing unease.
Let’s be honest, much of Trump 2.0’s economic and social policy agenda is incongruent. How can we deport millions of undocumented immigrants that are an important part of the U.S. labor force and then expect to ramp up our manufacturing economy while maintaining low inflation levels?
Additionally, how do we “drill baby, drill” while talking down the price of oil and implementing universal tariffs that serve to stifle trade and reduce global GDP?
I don’t have the answers to these questions, and many others, but I do know that I’m not the only one who sees that Trump/Bessent/Hassett et al cannot have their cake and eat it too.
One of the incoming administration’s stated objectives all the way back in January was to lower the cost of U.S. Treasury borrowing. In fact, Bessent asked to be judged by the yield on the U.S. 10-year Note. After many fits and starts, including a post-Liberation Day spike higher, Bessent appears to be getting the breakdown in long-end yields that he was hoping for…
U.S. 10-Year Treasury Yield (Daily)
This week’s breakdown in long-end Treasury yields is indicative of a rapidly slowing economy, and a potential recession. However, I still believe that Trump and his economic advisors are going to do everything in their power to regain nominal economic momentum. This will include aggressively lowering the Fed Funds Rate, Treasury buybacks (yield-curve control), and continuing to pour on as much fiscal stimulus as possible.
The sacrificial lamb will be the U.S. dollar and your fiat purchasing power.
Simply put, the stage is set for the next phase of financial repression; the likelihood is that inflation will run hot, and get hotter into 2026, while you will be able to earn less and less on your savings and money market fund balances.
Meanwhile, gold has had an historically awesome run over the last couple weeks. In fact, it wasn’t long ago that we were trading in the $3300s. Today, the December gold futures contract reached $3,654/oz:
Gold (Daily)
After such a large run-up in price there is always a fear that this ‘could be the top’. While gold could certainly see some short term profit-taking, the bigger picture forces at play here in September 2025 are too strong to ignore.
We must keep our eye on the ball and remember what I wrote just 48 hours ago:
“Historically, the most bullish periods for the gold price have been when the Federal Reserve is behind the curve and struggling to catch up with rapid changes in the economic outlook.
Sort of like right now.”
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