Poor Pre-NFP Employment Data Ignites Rate Cut Expectations
The yield on the benchmark 10-year U.S. Treasury note, often referred to as the "anchor for global asset pricing," fell to a four-month low on Thursday amid mounting evidence of a softening labor market, solidifying expectations that the Federal Reserve will restart interest rate cuts at its policy meeting later this month. The five-year Treasury yield also dropped to its lowest level since early April when the government’s tariff plans triggered market turbulence, while the 10-year yield breached 4.17% overnight, hitting a fresh low since early May.
Data released Thursday by Automatic Data Processing (ADP) showed that U.S. private employment growth fell short of expectations in August, with only 54,000 jobs added, below the consensus forecast of 65,000 and significantly slower than the revised 106,000 in the previous month. Nela Richardson, chief economist at ADP, noted that while job growth started the year strong, it has been repeatedly hit by uncertainty. Declining consumer confidence, labor shortages, and AI-related disruptions may be contributing to the slowdown.
Additionally, initial jobless claims data released on Thursday disappointed. U.S. initial jobless claims increased by 8,000 to 237,000 for the week ending August 30, marking the highest level since the week of June 21, 2025. Economists had expected 230,000 claims.
Eric Teal, CIO of Comerica Wealth Management, stated, "Amid lingering tariff policy uncertainty, implemented immigration changes, and growing AI adoption, we are seeing continued softening in the U.S. labor market. However, the weaker the employment data, the stronger the justification for stimulative rate cuts. To prevent further economic deterioration, growth momentum in the second half of the year should come from easier monetary policy and more stimulative fiscal measures."
According to the CME Group’s FedWatch Tool, following Thursday’s series of weak employment reports, traders in the interest rate futures market are now pricing in a 99% probability of a 25-basis-point rate cut by the Fed in September.
