8/4/25 REcap: Should the Fed have cut? Rates Drop After Bad Jobs Data

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Another great resource for homebuyers - our LendFriend Learning Center has over 100 articles to help homebuyers buy with confidence. Check out top articles of the week are at the bottom of this email, including how and why mortgage rates are influenced by the Federal Reserve.

Fed Says No Rate Cut Again

The Federal Reserve met on Wednesday, July 31st—just two days before a key labor market release—and once again opted to hold rates steady. The reasons are always the same: inflation remains above the Fed’s 2% target, tariffs are creating near-term price uncertainty, and the economy hasn’t slowed enough to justify easing. But this meeting was different than the ones we've seen in 2025. For the first time since 1993, two members of the Board of Governors, Christopher Waller and Michelle Bowman, formally dissented. Both members  argued that the Fed should have cut in July to preempt emerging weakness rather than wait for the data to confirm it, and it turns out they may have been right.

Waller and Bowman, both appointed by Trump, said the Fed’s current policy was too restrictive given slowing GDP growth and signs of stalling payrolls. “When labor markets turn, they often turn fast,” Waller warned in his statement. Bowman emphasized that an early move would have cushioned the downside and helped avoid more aggressive cuts later. Powell did acknowledge that downside risks were growing but not enough to trigger a need for a rate cut in the face of inflation uncertainty.

President Trump also gained a new opening to reshape the Fed with the surprise resignation of Governor Adriana Kugler shortly after the meeting. Trump has said he’ll only nominate members who favor rate cuts, and with Bowman and Waller already in place, Kugler’s exit could be the tipping point Trump needed to cut rates fast and hard, especially after Powell's wait-and-see posture didn't look too smart just 48 hours later after the labor data was released.

The Labor Market has Hit a Wall

Job openings data earlier in the week hinted at a slow grind—falling to 7.4 million, the lowest level since 2021, but that was nothing compared to the gut punch delivered by Friday’s jobs report. The U.S. added just 73,000 jobs in July, far below the 100k expected. But the real story was in the revisions: May’s numbers were slashed from 144,000 to just 19,000, and June dropped from 147,000 to 14,000. That’s a quarter-million fewer jobs than previously reported!! So, over the last three months, there’s been effectively no job growth at all.

Anyone who’s been on the job hunt in 2025 could’ve told you it was bad—but now it’s showing up in the data. Job gains are no longer widespread; nearly every major sector is stalling out, and the July numbers were propped up by healthcare alone. Unemployment ticked up to 4.2%, and Black unemployment surged to 7.2%. Trump, clearly furious with how it all looked, responded by firing the Bureau of Labor Statistics commissioner after finding out she's a Biden appointee. He accused the agency of rigging the numbers and promised to replace her with someone “more competent”. It's a move that even some Republican senators warned could damage the credibility of government data going forward. The saying "don't shoot the messenger" didn't seem to hold much weight last week.

Rate Cut Predictions

Rate cut predictions were volatile this week. Right after the Fed meeting and PCE reporting showing higher than expected inflation, there was just a 25% chance of a rate cut in September thanks to Powell's somber tone. However, the labor reporting on Friday changed EVERYTHING. After disastrous labor data dropped, futures markets are now signaling a 83.5% chance of a cut on September 17th. We'll still see 1 more round of labor reporting data between now and September 17th, Nothing is certain, especially when it comes to the Fed, but as of now, expect a cut. 

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Key reporting dates this week: 

Mon, 8/4: Factory orders

Tues, 8/5:  U.S. trade deficit, S&P final U.S. services PMI

Wed, 8/6: Fed. Gov. Lisa Cook and Boston Fed President Susan Collins on panel

Thurs, 8/7: Initial jobless claims, U.S. productivity, Atlanta Fed President Raphael Bostic speech, Consumer credit

Fri, 8/8: None scheduled


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