A series of data released on Thursday further reinforced the view that the labor market has cooled down, causing the market’s bet on the Fed’s interest rate cut to continue to heat up and pushing downward Treasury yields.

The ADP private employment report shows that the number of jobs increased by 54,000 in August. Economists had previously expected 75,000 new jobs for private companies, a figure lower than the 106,000 revised in July. In August, U.S. employers were significantly underrepresented in hiring, and the unemployment rate could rise to a new high in nearly four years. Employment growth has fallen below 100,000 for four consecutive months, which will be the weakest stage since the outbreak in 2020.

The market response was limited as investors believe the latest ADP data is weak enough to allow the Fed to cut interest rates in September, but not to indicate a recession. Traders have stepped up bets on the Fed’s interest rate cut on Sept. 17, according to CME Group’s FedWatch tool.

“Even the least willing officials to be loose should acknowledge that the risk of weak labor markets is increasing. If this momentum continues into the coming months, businesses may lay off jobs faster than hiring, eventually showing negative job growth.”

The probability of the money market being included in the Fed’s rate cut this month is about 90%, and it is expected to drop at least twice before the end of the year.

“The Fed’s ‘free course’ in the labor market is over. The ADP data continues to reinforce the narrative that the rate of positive changes in the labor market has slowed significantly, so you can expect the Fed to tend to cut rates in September.”