U.S. June Nonfarm Payroll Preview: Will a 4.3% Unemployment Rate Clear the Path for a July Rate Cut?

TradingKey - On Thursday, July 3, the U.S. Bureau of Labor Statistics will release the June Nonfarm Payrolls report, moved up one day due to the Independence Day holiday. Analysts believe this report may reveal early signs of Trump’s tariff policies impacting labor markets, and could further boost expectations for a July rate cut by the Federal Reserve — potentially supporting both U.S. equities and Treasuries.

According to FactSet, economists expect:

• Nonfarm payrolls to rise by 115K in June, down from 139K in May
• The unemployment rate to rebound to 4.3%, ending a three-month streak at 4.2%, a historically low level

U.S. Nonfarm Payrolls, Source: TradingKey

Signs of a Cooling Labor Market

Although the May jobs report showed the unemployment rate holding steady at 4.2%, employment growth came in below expectations at 126K, with downward revisions of 95K jobs to prior months’ data — signaling early signs of a cooling labor market.

BMO Capital Markets analysts noted that cracks are now showing in the so-called resilience of the U.S. job market. They argued that the longer trade uncertainty and fiscal restraint persist, the more pressure builds on employment figures.

Over the past three months, average monthly job gains have been 135K, compared to 186K during the same period last year.

Wall Street expects the impact of Trump’s tariffs on inflation and labor demand to become increasingly visible between June and August. Last Thursday’s data showed that the continuing claims for unemployment insurance rose by 37K to 1.974 million, the highest since November 2021, versus expectations of 1.95 million.

Fed’s July Rate Cut Becomes More Likely

Following the FOMC meeting in June, the newly released Summary of Economic Projections (SEP) showed a more cautious outlook:

• Median GDP growth forecast revised down from 1.7% to 1.4%
• Unemployment rate forecast raised from 4.4% to 4.5%
• Both headline and core PCE inflation forecasts were also revised upward

While FOMC members still project two rate cuts by year-end, recent comments from Fed officials like Christopher Waller and Michelle Bowman suggest growing openness to earlier action — especially as inflation risks remain contained and labor market indicators weaken.

Powell Leaves Door Open

On Monday, July 1, Fed Chair Jerome Powell, speaking at the ECB forum in Portugal, said that uncertainty around tariffs has kept policymakers cautious, as it remains unclear how much these policies will affect inflation and economic activity.

However, he hinted that if not for concerns about disrupting the final stages of the disinflation process, the Fed might already be moving toward easing monetary policy more aggressively. He did not rule out potential action at any meeting — including July’s FOMC session — but also emphasized that no decision has yet been made.

Wall Street Journal economist Nick Timiraos observed that Powell’s recent tone suggests a desire to keep monetary policy flexibility intact over the summer. Previously, the Fed required clear signs of deterioration to justify easing — but now, weaker-than-expected job numbers and softer inflation readings later this summer may be enough to trigger a shift.

Stocks and Bonds Rally on Rate Cut Bets

Despite significant volatility caused by Trump’s trade policies earlier in the year, both U.S. stocks and bonds closed H1 2025 on a strong note :

• The S&P 500 and Nasdaq Composite hit new all-time highs
• U.S. Treasuries delivered their best first-half performance in five years

Morgan Stanley continues to maintain an upbeat outlook for the S&P 500 over the next 6–12 months, citing the likelihood of further Fed easing as a key driver.

Goldman Sachs recently updated its forecast, shifting from a single December cut to three rate cuts starting in September. Wells Fargo, Citi, and UBS are even more optimistic — projecting three or four rate cuts by the end of 2025.

With the dollar weakening, rising bond prices, and stronger equity valuations, the stage appears set for continued financial asset strength — if the Fed turns dovish.