US job growth is slowing down, with nonfarm payrolls increasing by just 22,000 in August. There were also downward revisions of 21,000 jobs for June and July. The average job growth over the last three months is now 29,000, compared to 168,000 in 2024. This is at the lower end of what the Federal Reserve considers stable. The unemployment rate has risen to 4.3% as more people enter the labor force. A recent revision shows that nonfarm payrolls have been adjusted downwards by 911,000 as of March 2025, indicating that job creation over the past year was likely overestimated. This raises concerns that current job figures may be overstated. Inflation continues to be a worry, with the Consumer Price Index (CPI) rising by 0.4% from the previous month and 2.9% from the same time last year.

Inflation Concerns

The core CPI is at 3.1% year-on-year, with core goods inflation increasing at an annual rate of 3% over the last three months. Retailers and wholesalers have been trying to absorb rising costs, but tariff increases have doubled in August. Service inflation, excluding energy, has gone up by 3.6% year-on-year. The Federal Open Market Committee is expected to discuss economic projections and risks, likely considering a 25 basis point rate cut to address job concerns, despite inflation challenges. The jobs market is sending strong warning signals, highlighted by the disappointing 22,000 payrolls in August. Additionally, the large downward revision of 911,000 jobs for the year ending in March 2025 suggests the economy is weaker than we thought. This puts the Federal Reserve in a difficult position for their upcoming meeting, especially with inflation remaining high. The market is almost fully anticipating a 25 basis point rate cut, as indicated by the CME FedWatch Tool, which shows a 90% chance of this move. However, the Fed’s comments may pose a risk, as officials seem more worried about the core CPI holding at 3.1% than about slowing job growth. This might lead to a “hawkish cut,” surprising those who expect a more dovish approach. The clash between slowing growth and ongoing inflation could result in greater market volatility. The VIX index has risen above 19, indicating increased anxiety among traders ahead of the Fed meeting. Options trading to safeguard against sharp market shifts or to capitalize on them may be a smart approach in the weeks ahead.

Market Sentiment and Strategies

For equity index traders, the risks appear to lean toward the downside. The recent drop in weekly jobless claims to 245,000 highlights the weak labor market. Buying put options on the S&P 500 or Nasdaq 100 could be a solid strategy to protect against a negative reaction to the Fed’s guidance. This situation feels similar to late 2023 when markets misjudged the timing of rate cuts. In the bond market, the yield curve remains inverted—showing the 2-year Treasury yield at 4.5% while the 10-year sits at 4.1%. Historically, this has been a strong sign of an impending recession, usually occurring before downturns like the one in 2008. Traders may consider call options on long-duration Treasury ETFs to prepare for a shift to safer investments if economic conditions worsen. Create your live VT Markets account and start trading now.

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