Fed Rate Cut Debate Intensifies: Employment Data Revision Fuels Calls for Action

Fed Rate Cut Debate Intensifies: Employment Data Revision Fuels Calls for Action

Jefferies Chief Market Strategist David Zervos believes the Federal Reserve should consider a bold shift in monetary policy, making the case for a further rate cut at the upcoming meeting. Zervos argues that the Fed's employment narrative has crumbled.

"If you look at those revisions... 1.5 million jobs were revised away in 2024. That's a staggeringly big number." He says these revisions bring the focus back to the employment side of the Fed's dual mandate, providing justification for the Fed to make a more substantial rate cut at next week's FOMC meeting.

While markets are expecting the Fed to cut rates by 25 basis points, Zervos says the case for a more significant rate cut is clear. He says there is a "very compelling case" to be made for a 75 basis point cut, but he doesn't think that would get through politically. "I don't think that would even be put on the agenda."

Zervos emphasizes that the Fed must be willing to change course based on evolving data. "I think you can make an argument, a radical argument, that it's time to do a complete about-face and say, 'Hey, we made some mistakes,'" but he doesn't believe the Fed will do that. He adds that it’s about flexibility and responsiveness to economic realities.

Employment Data Revision Spurs Calls for Rate Cut

Earlier this week, the U.S. Bureau of Labor Statistics released its annual preliminary benchmark revision, which lowered previously reported nonfarm employment gains from April 2024 to March 2025 by 911,000.

While this has prompted several prominent figures to call for a rate cut, a handful of others, such as economist Peter Schiff, have warned that cutting rates could "only hurt the labor market," citing a weaker dollar, rising consumer prices, and potentially higher long-term interest rates.

According to the CME Group's FedWatch Tool, markets are currently pricing in a 93.7% chance of the Fed cutting rates by 25 basis points in September, with a 76% chance of another cut in October. It's important to monitor these probabilities as they reflect market sentiment and expectations.

White House Reacts

The earlier-this-week employment data revision reignited calls for a rate cut. "Just as the Bureau of Labor Statistics has failed the American people, so too has 'too late' Jerome Powell – he has no excuses and must cut rates immediately," White House Press Secretary Karoline Leavitt said in a statement.

This increased pressure for a rate cut places added strain on the Federal Reserve. It remains to be seen how the central bank will respond to these pressures at its upcoming meeting.