July Now Favored for First Fed Rate Cut After Strong April Jobs Report

A stronger-than-expected April jobs report has shifted trader expectations for the first Federal Reserve rate cut of 2025 from June to July. The U.S. added 177,000 jobs last month, beating forecasts of 138,000. The unemployment rate remained steady at 4.2%, while average hourly wages rose 0.2%, slightly lower than the previous month’s 0.3%. However, job gains from prior months were revised down by 58,000.

Following the report, the probability of a rate cut at the June 18 FOMC meeting dropped to 31.8%, down from 50.4%. Meanwhile, the odds for a July 30 cut rose to 57%, up from 47%. Markets widely anticipate a 25-basis-point cut, which would lower the federal funds rate from the current 4.25–4.5% to 4.0–4.25%.

Economists are now increasingly eyeing July for the first rate cut of the year. David Page, Head of Macro Research at AXA Investment Managers, still sees a June cut as likely but acknowledges that the risks of a delay have increased. AXA forecasts three cuts in 2025, bringing the rate down to 3.75% by year-end, with two additional cuts in 2026 to 3.25%.

T. Rowe Price’s Chief U.S. Economist Blerina Uruci noted that the April payroll data shows no signs of labor market weakness. She argues that market expectations for early monetary easing were overly optimistic and maintains her forecast of two rate cuts in the second half of the year.

As economic data continues to influence Federal Reserve policy expectations, traders and analysts will closely monitor upcoming inflation and employment reports for further clues on the timing of rate adjustments.