Following an unexpectedly weak U.S. nonfarm payrolls report that highlighted the potential for significant economic deceleration or even recession, several Wall Street investment institutions believe the Federal Reserve should accelerate its monetary easing pace, including the rising possibility of a substantial 50 basis point rate cut this month. If the Fed chooses to restart its rate cutting cycle with a 50 basis point reduction at this month's FOMC monetary policy meeting, it would mirror the 2024 rate cutting script exactly, and the remaining two meetings this year could potentially follow the decisions of the final two meetings in 2024 – cutting rates by 25 basis points each to continue the easing trajectory.

Before Friday's employment report was released, interest rate futures traders collectively bet that the Fed would cut its benchmark rate by a conventional 25 basis points at the September 16-17 monetary policy meeting, wagering this would be the first rate cut in nine months and the beginning of the Fed's renewed cutting cycle.

Nick Timiraos, a reporter known as the "Fed's mouthpiece," stated after the nonfarm data release that the sharp slowdown in job growth this summer, with August's nonfarm employment report making it very clear that U.S. job growth has significantly cooled since the beginning of the year, almost certainly ensures the Fed will cut rates by 25 basis points at its meeting in two weeks.

Following the extremely weak August nonfarm data and the continued downward revisions of previous months' employment figures, the "CME FedWatch Tool" shows a 90% probability of a 25 basis point Fed rate cut in September. Notably, the probability of a 50 basis point cut has significantly increased from zero before the nonfarm release to 10%.

Fed Chairman Jerome Powell laid the groundwork for September rate cuts in his speech last month, pointing out significant risks in the U.S. labor market. For the October 29 and December 10 FOMC monetary policy meetings, interest rate futures traders widely bet the Fed will consecutively cut rates by 25 basis points each, essentially betting that the Fed will cumulatively cut rates by 100 basis points in the remaining three meetings of 2025, wagering the Fed will replicate the 2024 rate cutting path.

**Market Seeks More Aggressive Rate Cutting Process After Weak Nonfarm Data**

August U.S. nonfarm job growth was far weaker than expected, and after revisions, June's job additions actually turned negative, marking the first monthly employment contraction since 2020. Following the latest nonfarm report release, all three major U.S. stock indices fell, the dollar weakened, and Treasury yields declined across the board.

Undoubtedly, with data showing U.S. August nonfarm payrolls added only about 22,000 jobs, far below the market expectation of 75,000, and June employment data revised down to negative growth, market pricing has begun to allow for larger half-percentage-point rate cut predictions, while now expecting more Fed easing measures by the end of 2025.

The U.S. labor market is sending the clearest signal yet of economic cooling. August nonfarm job growth fell far short of expectations, the already weak June and July nonfarm employment figures were collectively revised down by another 21,000, and the unemployment rate rose to 4.3%, the highest level since 2021. These data further solidify market expectations for a 25 basis point Fed rate cut in September and put the option of a 50 basis point cut on the table.

"This is the second consecutive disappointing nonfarm employment report, undoubtedly providing important evidence for U.S. economic deceleration," said Jack Ablin, founding partner and chief investment officer at Cresset Capital. "If you combine this with Fed Chairman Powell's relatively greater inclination toward full employment rather than price stability, it does suggest the Fed might take action beyond what was originally planned."

The increasingly clear prospect of Fed rate cuts has been supporting U.S. and global stock market upward momentum in recent weeks, but after Friday's nonfarm employment report release, U.S. stock market performance was volatile. After the data release, stock index futures initially jumped, then reversed course and declined. The benchmark S&P 500 index closed down 0.3% on Friday.

**Bad News No Longer Entirely Equals "Good News"**

The "bad news is good news" theory has long been one of the core catalysts driving U.S. stock valuations higher and tech stocks to repeated historical highs – meaning increasingly poor U.S. economic conditions imply more aggressive Fed rate cuts, thereby benefiting risk assets like U.S. stocks. However, this theory showed significant cracks in Friday's weak performance, as the U.S. stock market re-embraced the "classic framework" driving stock gains – strong earnings and a resilient, steadily "soft landing" U.S. macroeconomy, rather than "bad news is good news."

"If investors focus on the Fed's policy rate cuts, that could support the stock market," said Jim Baird, chief investment officer at Plante Moran Financial Advisors. "If investors instead view this as a harbinger of further deterioration in labor conditions, large-scale unemployment, and potential further economic deceleration or even recession, that wouldn't be good news for stocks."

International bank UBS recently warned that based on "hard data" from May to July 2025, the risk of U.S. economic recession is as high as 93%. UBS describes the current situation as "stable but high-risk," which in medical terms is like high blood pressure – it might not collapse immediately, but it's dangerous. UBS hasn't formally predicted a recession but expects lackluster economic growth in 2025 with potential recovery in 2026.

Due to rising market concerns about significant U.S. economic deceleration or even recession, investors have flocked to buy U.S. Treasuries, driving both short-term and long-term yields lower. The 10-year Treasury yield, known as the "anchor of global asset pricing," once fell to 4.06%, reaching a five-month low.

Meanwhile, in foreign exchange markets, expectations of accelerated rate cuts have pushed the dollar index to near a six-week low.

"We observe G10 foreign exchange trading moving in tandem with nominal yields at the front end of the Treasury yield curve. This is why the dollar declined after weaker-than-expected nonfarm payrolls," said Benjamin Ford, researcher at macro research and strategy firm Macro Hive.

According to LSEG data, as of Friday afternoon, the federal funds futures market had priced in a 10% probability of a 50 basis point rate cut later this month, with the remaining 90% probability on a 25 basis point cut.

**Replicating the 2024 Rate Cutting Path?**

Blair Shwedo, head of investment grade sales and trading at US Bank, pointed out that when the Fed began its rate cutting cycle in September 2024, it started with a half-percentage-point cut.

"So I think the market is looking back at that situation, realizing the Fed isn't afraid to start with a more aggressive 50 basis point cut," Shwedo said.

Mark Malek, chief investment officer at Siebert Financial, said a 50 basis point move "would bring tailwinds to the stock market."

"This would certainly boost mega-cap growth stocks and give investors the green light to take on more risk," Malek said.

Slawomir Soroczynski, head of fixed income at Crown Agents Investment Management, said a 50 basis point cut could lead to "capitulation" of short bets on the front end of the Treasury curve, potentially exacerbating bond market volatility.

More aggressive easing prospects could also further intensify inflation concerns. Current inflation remains above the Fed's 2% target, while Powell and other Fed officials have been wary that Donald Trump's tariffs could lead to higher prices.

"Powell's concern is that tariff uncertainty remains, and he knows that from an inflation perspective, rising risk appetite would certainly drive asset price inflation," said George Cipolloni, portfolio manager at Penn Mutual Asset Management. "So will tariffs and Fed policy drive consumer price inflation? That's where the tug-of-war lies."

Not everyone believes substantial rate cuts will follow the employment data. Phil Blancato, CEO of Ladenburg Thalmann Asset Management, said August is a "noisy month," and actual August data is often revised upward afterward.

More data will emerge before the September Fed FOMC monetary policy meeting, especially next Thursday's August Consumer Price Index report, which will provide another reading on inflation trends.

"Inflation remains a major issue and hasn't been significantly suppressed by expectations of slower economic growth," said Melissa Brown, managing director of investment decision research at Simcorp.