Weaker labor-market data this week could bolster the case for the Federal Reserve to resume rate cuts soon

Federal Reserve Chair Jerome Powell (center) speaks alongside Michelle Bowman (left), vice chair for supervision, and Lisa Cook (right), board governor, at Federal Reserve Board meeting in Washington on June 25.

Weaker labor-market data this week could bolster the case for the Federal Reserve to resume interest-rate cuts soon.

“My view is that I do think the Fed should cut in July,” said Matt Brill, head of North America investment-grade credit at Invesco Fixed Income, pointing to cracks in the jobs market.

While the backdrop doesn’t look bad yet, Brill said there have been enough warning signs in recent labor data to suggest the Fed should “go out and get in front of it.”

His comments followed a Wednesday morning employment report that surprised Wall Street by showing that privately run companies cut 33,000 jobs in June — instead of creating 98,000 jobs as expected — and pointing to the first wave of cutbacks in more than two years, according to payroll processor ADP.

Though investors closely follow ADP reprts, they also can diverge significantly from official U.S. jobs readings produced by the U.S. Bureau of Economic Analysis, as MarketWatch’s Jeffry Bartash explained.

“We will see what tomorrow brings,” Brill said of Thursday’s nonfarm-payrolls report, which comes a day early this month because of the Fourth of July holiday on Friday.

The consensus around Thursday’s jobs report has been that it will reflect about 110,000 new jobs being added to the economy. Should it come in surprisingly weak also, that likely makes July’s Fed policy gathering a “live meeting” in which the central bank will consider cutting interest rates, Brill said.

While there could be a “more pronounced market reaction to downside surprises,” according to Josh Hirt, a senior economist at Vanguard, he sees a labor market that has cooled but remains stable.

“Federal Reserve interest-rate policy is likely on hold for now, and recent positive tariff developments should mitigate worst-case dual-mandate challenges for the Fed,” he said in emailed comments.

Businesses and markets spent much of the past six months trying to parse what President Trump’s tariffs and other significant policy shifts will mean for inflation, margins, labor, rates and the economy.

Financial markets appear to be settling into a more stable groove at the start the second half of the year, helped by progress on initial trade agreements, especially with China. Stocks recently reclaimed record highs, bond yields have eased off their recent peak and the U.S. economy has been holding up fairly well.

Credit spreads in the bond market also reflect a backdrop where the U.S. avoids a recession, according to Brill, who sees potential for them to still grind tighter.

At last check, the ICE BofA U.S. Corporate Index spread was at 85 basis points above the Treasury rate, or near the lows of the past 25 years.

When recession fears rise, spreads tend to widen, reflecting the extra compensation investors demand above a risk-free rate in exchange for increasing default risks.

While the Senate passed a version of Trump’ s signature tax-and-spending bill that would add to $4.1 trillion to the national debt through the next decade, it also includes tax cuts for corporations and other potential businesses-friendly provisions.

“I think we are setting up for a nice second half of the year,” Brill said. Though it’s hard to say if spreads will be materially tighter, he noted, the Fed looks willing to support the economy if needed.

There’s also been a backdrop, he said, where investors “want to buy the dip” on any kind of weakness in markets.

That’s been true for stocks too, with the S&P 500 index setting a fresh intraday record on Wednesday and hitting another record close, according to Dow Jones Market Data. The Dow Jones Industrial Average fell fractionally, and the Nasdaq Composite gained 0.9%.

Yields on 10-year and 30-year Treasurys were up about 5 basis points to 4.29% and 4.82%, respectively. Of note, after the U.S. central bank started cutting its policy rate last year by 100 basis points, those yields rose, instead of falling as expected.