Good morning, investors. The labor market is the most important input for markets right now, and every shop on the Street knows it. Indeed, Friday’s jobs data was the back-breaking straw for Bank of America to change its policy outlook.

The August jobs report convinced Wall Street’s last rate-cut holdout to capitulate. 

The US economy added just 22,000 jobs last month, below expectations for 75,000. That data was troubling enough for Bank of America to change its view from zero Fed rate cuts this year to two, in September and December.

“There is now clearer evidence of deterioration in labor demand, not just supply,” the BofA team wrote.

While there’s little precedent for a cutting cycle in which the central bank doesn’t cut at every meeting, the strategists noted that upward inflation pressures lead them to believe policymakers will skip a cut in October.

CME data shows about 90% odds for a 25-basis-point rate cut in September, while traders on the prediction market Kalshi assign 87%.

The US has added an average of 29,300 jobs per month over the last three months. Low as that may seem, Ed Yardeni of Yardeni Research believes that could be the new “breakeven” pace necessary to keep the unemployment rate from rising. 

From his perspective, the labor market remains stable and balanced.

“Labor force growth has been weak due to limited immigration and increasing deportations,” Yardeni said.

“Therefore, the labor market needs to create fewer jobs to maintain a low unemployment rate.”

“This is the sort of job market pattern one typically sees before an official recession takes hold,” added Dave Rosenberg, founder of Rosenberg Research.

“But nobody seems to believe an economic downturn will ever occur again. The bull market remains in hubris and complacency.”

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🏦 President Trump has his finalists for Fed Chair. He said Friday that National Economic Council director Kevin Hassett, Fed Governor Chris Waller, and former Fed Governor Kevin Warsh are among his top candidates to lead the central bank. (Barron’s)

🤝 The Fed must be entirely independent, says Kevin Hassett, who is on Trump’s short list for chair of the central bank: “I would say 100% that monetary policy, Federal Reserve monetary policy, needs to be fully independent of political influence, including from President Trump.” (Reuters)

📊 Investors have borrowed more than $1 trillion to wager on markets. This is the first time margin loans have exceeded that level, and that could drive heightened volatility in the coming weeks as the Fed announces its rate cut decision. (Barron’s)

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📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

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