Federal Reserve policymakers are increasingly focused on the health of the US labour market, and the latest data suggests that focus is warranted, according to ABN AMRO’s Chief Economist Nick Kounis. In a note published this week, Kounis highlighted renewed weakness in employment figures, pointing to a fall in Nonfarm Payrolls and softening household employment data as evidence that the jobs market is losing momentum.
The unemployment rate’s recent decline, Kounis argues, is not a sign of strength. Instead, it reflects a drop in the labour force participation rate to levels not seen in decades, as workers left the job market altogether. That dynamic, he said, points to cyclical weakness rather than a tightening labour market.
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What the latest jobs data shows
The July jobs report, released on August 7, 2026, showed Nonfarm Payrolls falling by 12,000, a sharper decline than the modest gain economists had expected. The household survey, which captures a broader range of workers including self-employed and gig workers, also showed employment contracting, with a loss of 45,000 jobs.
The unemployment rate ticked down to 4.3% from 4.4% in June, but that improvement was driven entirely by a 0.2 percentage point drop in the participation rate to 62.1%, its lowest level since the early 1980s when adjusted for age. Kounis noted that such a low participation rate suggests that many workers have become discouraged and stopped searching, which artificially lowers the unemployment figure.
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Why the Fed’s focus has shifted
For much of the past two years, the Federal Reserve’s primary concern was inflation, which peaked at 9.1% in June 2022 before a series of aggressive rate hikes brought it down. But with inflation now hovering near the Fed’s 2% target, the central bank’s dual mandate has swung back toward maximum employment.
In his most recent press conference, Fed Chair Jerome Powell emphasized that the labour market is “no longer overheated” and that the central bank is watching for signs of “unexpected weakening.” The July payrolls report, along with the household survey data, may provide that sign.
Kounis argues that the combination of falling payrolls and declining participation is a classic signal of cyclical deterioration. He noted that similar patterns preceded past recessions, though he stopped short of predicting one. “The labour market is clearly cooling, and the Fed will need to respond,” he wrote.
What this means for rate cuts
Markets have already priced in a high probability of a rate cut at the Fed’s September meeting, and the weak jobs data has reinforced those expectations. According to the CME FedWatch tool, futures traders now assign an 82% chance of a 25-basis-point cut in September, up from 68% a week ago.
Some economists are calling for a larger 50-basis-point cut, arguing that the Fed is behind the curve. Kounis, however, cautioned against overreacting to a single month of data, noting that the Fed will want to see more evidence of a sustained slowdown before moving aggressively.
The next major data point will be the August jobs report, due out on September 4, 2026. If it confirms the weakness seen in July, the case for a more aggressive easing cycle will strengthen. If it rebounds, the Fed may opt for a more measured approach.
For now, the focus is clearly on jobs. As Kounis put it, “The Fed’s dual mandate has shifted decisively toward employment, and the labour market is now the key driver of policy.” Whether that leads to a soft landing or something worse remains an open question, but the data will be watched closely in the coming weeks.
