How Downward Revisions Affect Interest Rates

The U.S. job market just got a major revision. The Labor Department’s preliminary benchmark shows payrolls were 911,000 lower in the year through March than first reported, the largest downward adjustment on record. That means monthly job growth was roughly half of what the original data suggested. Where were the biggest markdowns? → Wholesale and retail → Leisure and hospitality → Professional and business services → Manufacturing Key implications: ✅ The labor market has been weaker than headlines suggested, adding pressure on the Fed to cut rates (likely next week). ✅ Revisions show why early data must be treated with caution, they’re routine, but this one is unusually large. ✅ Political scrutiny of labor data will intensify, even as the BLS process remains standard. Context: in an economy with 163M employed workers, a 911K revision is meaningful but not catastrophic. Still, it suggests the cycle may have peaked in 2024. The question now: Is this just a statistical correction, or a signal the slowdown is deeper than we thought? https://lnkd.in/gEyRe9MS #Jobs #LaborMarket

Today, the Federal Open Market Committee (FOMC) met for the last time in 2023. It also released its last quarterly set of Summary Economic Projections (SEP) for the year, which showed its latest consensus expectations of interest rate movements for the next year. These expectations are not static - they have changed throughout 2023. Now, though, they appear to be trending downwards.   How the Fed Changed Its Mind in 2023 From December 2022 to September 2023, the median consensus estimate of the Federal Funds rate at year-end 2024 repeatedly increased. Compared to December 2022, its year-end 2024 estimate had increased by a full percentage point by September 2023. However, in today’s SEP the Fed revised downwards its expectations of the Federal Funds rate at the end of 2024 for the first time in over a year, from 5.1 percent to 4.6 percent. With the Federal Funds rate currently at 5.3 percent, this roughly implies that the Fed is currently expecting two to three 25-basis point rate cuts next year. Buried deeper in the SEP, the Fed includes probability bands around its median estimates. These bands indicate the range in which The Fed is 70 percent confident that the actual Fed Funds rate will be within. These bands have narrowed throughout 2023, indicating that the Fed is more confident of its year-end 2024 forecast than at the start of 2023. This is due in part to the shorter forecast period, but is also reflective of stabilizing market conditions. This decline in rate expectations is welcome news for those who have waited with baited breath for signs that we are at peak fed funds rate. Indeed, in today’s press conference, Jerome Powell said "We acknowledge that we are likely at or near the peak rates for this cycle." Lower rates in 2024 would relieve some pressure in CRE credit markets, making it easier to finance commercial property purchases.  

Today's jobs report revealed a significant cooling in the labor market, increasing the likelihood of a Federal Reserve rate cut in September. Here are the key takeaways from our latest analysis at Redfin: 📉 Weaker Job Growth: The U.S. added only 73,000 jobs in July, well below the 100,000 forecast. The unemployment rate ticked up to 4.2%. 🔍 Major Revisions: The biggest story is the massive downward revision of prior months' data. A staggering 89% of the job gains reported for May and June were revised away, suggesting the labor market was weaker than it appeared. 🏡 What This Means for Housing: This data supports the case for the Fed to cut interest rates. As a result, we expect mortgage rates to fall, offering a potential window of opportunity for homebuyers who have been waiting on the sidelines. However, the drop may be limited, as markets have already priced in some of this anticipated weakness. We'll be closely watching the next round of jobs and inflation data ahead of the September 17th Fed meeting.

Revisions Matter: U.S. Job Growth in 2025 Is Weaker Than It Appears Nonfarm payroll numbers in the U.S. have been revised down by a cumulative 219,000 jobs so far in 2025—a sobering reminder of how headline data can mask underlying labor market fragility. The chart underscores a growing trend: downward revisions have become more consistent and more pronounced, especially over the past 12 months. While initial releases often grab headlines, the real story emerges with these quieter adjustments—pointing to softer labor conditions than many economic narratives suggest. This has meaningful implications for: • Monetary policy: The Fed’s rate path may need to adjust sooner than anticipated. • Markets: Equity and credit investors should question assumptions about labor strength. • Macro risk: If job growth is overstated, so too may be GDP and consumer resilience. Chart source: Liz Ann Sonders / Bloomberg

Rate Cuts Are Back on the Menu The downside miss in July payrolls sent ripples through the Treasury market, sharply bull steepening the curve. While headline payroll growth missed at 73k, the big story was the 258k downward revision to the prior two months of data. This lowers the 3-month average of payroll growth to just 35k and the 6-month average to just 81k. The market's pricing for a September rate cut jumped to 90% from just 50% prior to the report, suggesting that investors are bracing for an imminent resumption of cuts. However, the Fed will need a bit more information ahead of September. The unemployment rate is still low at 4.2% and the Fed needs to ensure trade-induced inflation doesn't take root, which makes the next few inflation reports especially key. Look for the rates market to remain choppy, but we look for rates to continue drifting lower by year-end, expecting a 4% 10y later this year.