Federal Reserve Chair Jerome Powell signaled the Fed could begin cutting interest rates in September, citing a “cooling” labor market after sharp slowdowns in hiring and rising signs of worker distress. Markets swiftly priced in a high likelihood of a quarter-point cut at the Sept. 16–17 FOMC meeting, a notable shift after nearly a year on hold.
Powell’s remarks at the Jackson Hole symposium leaned dovish and emphasized growing employment risks, especially after downward revisions to spring payrolls. He noted job growth averaged just ~35,000 per month over the past three months, down from ~168,000 per month in 2024—a marked deceleration that, if it persists, could tip the economy toward higher layoffs and unemployment.
The caution follows a weaker July jobs report: unemployment held at 4.2%, while sector gains narrowed and earlier months were revised lower. The data flashpoint also triggered political controversy after President Donald Trump removed the BLS commissioner on Aug. 1, drawing warnings from economists about undermining confidence in official statistics.
The three red flags Powell is watching
1) Hiring has slowed to a crawl
After robust post-pandemic gains, net job creation has downshifted dramatically. Powell put the three-month average at ~35,000 versus ~168,000 in 2024, reflecting softer demand and big downward revisions to May–June payrolls. That pace is consistent with an economy on the edge of stall speed for employment.
2) Long-term unemployment is rising
Americans out of work 27 weeks or more climbed to about 1.8 million in July, up 179,000 in a month and ~283,000 year over year—roughly one in four of all unemployed workers (7.2 million). Extended joblessness typically signals harder re-entry and can foreshadow broader weakness.
3) Young workers are getting hit harder
The youth unemployment rate (16–24) reached 10.8% in July (NSA), higher than 9.8% a year earlier; the teen (16–19) rate stands at 15.2% (SA). Employers report limiting entry-level roles, and early evidence suggests firms are automating routine tasks or delaying junior hires amid tariff and cost uncertainties.
Why it matters
A sustained hiring slowdown raises the odds of broader layoffs, weaker wage growth and a dent to consumer spending. That’s the backdrop for Powell’s pivot: if the Fed waits too long, labor-market slack could widen quickly; move too soon, and inflation progress could stall. For now, Wall Street expects at least one cut in September, with several banks penciling in two cuts this year.
There’s also a policy-credibility angle: political salvos at official data—and the firing of the BLS chief—have stirred concern among analysts over the perception of statistical independence, even as the underlying labor signals themselves have softened.
What experts are saying
“There’s a real cooling in the labor market… and companies are signaling future layoffs,” said Andy Challenger of outplacement firm Challenger, Gray & Christmas. Career coaches warn new grads face a “perfect storm”: fewer entry-level postings, heavier competition, and employers experimenting with AI in place of traditional starter roles.
Challenger’s latest cuts tally shows technology/automation (including AI) gaining as an explicit driver of reductions, with tariff and budget strains also cited this summer—factors that can delay hiring even when firms stop short of layoffs.
What’s next
- Key data: The next Employment Situation (covering August) lands Friday, Sept. 5, 8:30 a.m. ET, providing the last comprehensive read on jobs before the Fed meets.
- Fed decision: The FOMC meets Sept. 16–17; markets now assign a high probability to a 25 bps cut, contingent on jobs and inflation prints.
If you’re a job seeker: practical takeaways (user-intent)
- Don’t pause your search. Experts say it’s unlikely the market improves in 3–6 months, so keep applying and interviewing now.
- Aim where hiring persists. July data still showed health care and social assistance trending up; anchor your outreach there while the cycle cools.
- Offset the AI effect. Emphasize skills that leverage AI (data handling, prompt-driven workflows) rather than compete with it; many firms are automating basics but still need humans for context and judgment.
- Broaden entry points. Consider contract/temporary roles and smaller firms to gain experience and reduce time unemployed—long spells can be self-reinforcing. (Inference from BLS long-term unemployment trends.)
Bottom line
Powell’s pivot reflects a labor market that’s not collapsing—but clearly cooling. The combination of slower hiring, more long-term joblessness, and rising youth unemployment explains why the Fed is preparing to nudge rates lower. The next two weeks of data will determine whether that nudge becomes the first step in a broader easing cycle heading into year-end.
