US economy 'on wobbly footing': Why Wall Street strategists are cautious about stock market's recent records
The latest data released on Thursday, for example, showed strong nonfarm payroll gains in the month of June and a surprise downtick in the unemployment rate. Earlier data in the week showed job openings unexpectedly rose in May to hit the highest level since November 2024. Additionally, economists have said easing inflation in areas like housing and energy may help offset tariff-related price increases.
"If the Fed cuts in the second half of 2025, it is more likely because inflation is lower than expected than because the unemployment rate rises more than expected," Adams said.
To cut or not to cut?
The timing of Fed rate cuts remains one of the most hotly debated topics heading into the second half of the year as President Trump continues to pressure the central bank to slash interest rates.
"We still think cuts in the next two meetings are unlikely,” Morgan Stanley economists wrote in a note this week. It's a reality markets are beginning to digest, with futures now recalibrating the chances of a Fed rate cut following June's strong jobs numbers.
As of Thursday afternoon, markets are pricing in a roughly 67% chance the Fed cuts by the end of its September meeting, down from a 93% chance seen one week prior, per the CME FedWatch Tool.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Morgan Stanley sees the Fed delivering seven rate cuts in 2026, helped by the expected arrival of a more dovish Fed chair following Jerome Powell’s departure early next year.
JPMorgan echoed that caution, saying the Fed is unlikely to ease unless private payroll growth dips "well below 100,000" in the next two reports — a risk that at least did not materialize in June with 147,000 jobs added.
To that point, Powell has consistently emphasized the central bank's ability to remain patient as it assesses the economic fallout from rising tariffs.
"The size of the impact with this type of shock that we haven't had probably in close to 100 years is very hard to have certainty on," Claudio Irigoyen, head of global economics at Bank of America, said on a midyear outlook call with reporters on Tuesday.
He added that "uncertainty is worse than bad news," explaining that businesses "cannot commit to long-term investment when the rules of the game are not clear."
Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at
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