Wall Street is certain that the Federal Reserve will cut interest rates in September! The question is: 25 or 50 basis points?

If there were still doubts about when the Fed would cut interest rates before, the employment report released last Friday has completely convinced Wall Street: the rate cut will take place in September.

Following the last Federal Open Market Committee (FOMC) meeting, Fed Chairman Powell opened the door to a rate cut in September, but after the employment report data released last Friday fell far below expectations, now people are starting to question whether the Fed's action is too late.

The U.S. Bureau of Labor Statistics stated last Friday that only 114,000 jobs were added in July, far below the expected 175,000; the unemployment rate rose to 4.3%, while it was expected to remain at 4.1%.

The international market has been anxiously watching the world's largest economy, the unexpected drop in employment data has prompted analysts to quickly reassess their forecasts for the remaining time of this year.

Previously, Bank of America was confident that the first rate cut would take place in December, but the weak employment report was enough to make them bring forward their expectations to September.

"Most importantly, the weak July employment data led us to change our baseline expectation for the Fed's first rate cut from December to September," the Bank of America U.S. economics team wrote in a report last Friday, adding that they have "locked in" the rate cut. "Overall, the labor market is cooling down, but there is no significant slowdown."

Economists pointed out that Hurricane in Texas caused 436,000 non-agricultural workers to be unable to work due to severe weather.

"The increase in the number of unemployed this month is due to temporary unemployment," the team wrote. "Therefore, we believe that this special non-farm employment number is not a new trend, the three-month moving average is closer to 175,000, which is more likely the trend."

Although Bank of America believes that the impact of the employment report is not as significant as it initially appeared, the institution still expects the Fed to cut rates by 25 basis points in September.

Analysts say the federal funds rate will continue to fall to a range of 3.25% to 3.5%, adding, "If the economic slowdown is faster than our or the Fed's expectations, it will indicate less need for high-rate policy for a longer period."

Similarly, UBS also calls for an accelerated rate cut.

UBS senior U.S. economist wrote in a report last Friday, "With the unemployment rate higher than the Fed's year-end forecast and core PCE inflation lower than the Fed's year-end forecast, we believe the risk balance favors the Fed taking more aggressive action. We have revised our baseline to the Fed cutting rates by 50 basis points in September, 25 basis points in November and December each, for a total of 100 basis points by the end of the year."

As analysts further strengthen their stance on rate cuts, Wells Fargo warns that if Powell does not take action, Wall Street may react extremely.

Wells Fargo senior economist Mike Pugliese said upon the release of the employment report, "Based on the information we have now, not cutting rates in September would surprise us or the financial markets, if the FOMC takes an unexpectedly hawkish stance in the next seven weeks, financial conditions may tighten

The Sam Rule Issues a Recession Signal

The July employment report also touched on an indicator that economists have been closely watching for months, the Sam Rule, which has accurately predicted when the United States will enter a recession in the past.

This indicator examines two factors: the current three-month moving average unemployment rate in the United States and the lowest three-month moving average unemployment rate in the past year. If the current average is more than 0.5 percentage points higher than the lowest average, the U.S. economy will enter a recession.

Until last month, this index had been below 0.5%. However, in July, it rose to 0.53%.

Nevertheless, the creator of this rule, Sam, said, "No one should panic."

"This time may really be different," she said last week. "The Sam Rule may not be as accurate as in the past due to labor shortages, people exiting the labor market, and recent immigration surges causing fluctuations."

But not everyone received the "do not panic" message.

Prior to the FOMC meeting at the end of July, former New York Fed President Dudley stated that the Fed needs to cut rates quickly. Now, Tesla CEO Musk and Pershing Square founder Ackman have raised the same issue.

"The Fed needs to cut rates," Musk wrote on social media platform X. "It was foolish of them not to cut rates before."

Similarly, Ackman has been calling for rate cuts since the end of last year, writing earlier on Monday, "The Fed's rate hikes have been too slow. Now the rate cuts are also too slow."