No more a question of whether the Fed will cut interest rates but when

Now that the long-term labor market is showing signs of strain, economists and investors now believe the Federal Reserve will move to cut prices this year, as early as next month.

The economy added only 75,000 jobs in May, about 100,000 fewer than expected, a sign that the slower that occurs in other parts of the economy is now affecting the labor market.

"I think this is a real downturn in hiring right now. Sometimes you may be a bit offensive to monthly volatility, but I think we have enough indication," said Luke Tilley, chief economist at the Wilmington Trust. He said hiring brakes match the downturn in ISM production and other data, and appears to be a result of tariffs and uncertainty about the commercial war.

Stocks were first sold on the report, but then moved higher when the market took the news as a sign of the Fed would cut interest rates. In the government bond market, the dividend, which was already in sharp decline this week, fell further. The 2-year return reflects Fed policy expectations, falling to 1[ads1].77% from an intraday high of 1.89%. The 10-year return, which affects mortgages and other loans, fell to a low of 2,059%. The proceeds move the opposite price.

"I think the Fed has signaled that they are ready to go in and lower prices, if the economy continues to be slow, if trade wars still have no outcome," said Michael Arone, chief investment strategist at State Street Global advisers. "I think today's report should support the idea that the Fed will cut prices. I'm not sure it's going to June, but I don't think we're too far from a Fed cut."

According to the Employment Report, matfondsfutures moved higher, and signaled market expectations for a full quarterly Fed price swing in July, half a percentage point in September and a third cut in December, according to BMO.

"You'd think the market is gravity toward a cut in July, a cut in September and another in December. We have 2.9, 25 base point reductions priced in in 2019," BMO rate strategist Jon Hill said. There would be 0.75 percentage point reduction in the target rate for math funds, which is now between 2.25 and 2.50%.

The market is now priced at a 95 percent chance of quarterly points in July, Hill said. Fed next meet June 18-19 and July 30-31.

"The market signals obviously scream for the Fed to cut prices. … We don't think the Fed is going to cut this meeting [June]," Tilley said. "I don't think the Fed has done enough to describe it. On the margin, today's report, especially with the weaker average hourly wage, will push them toward cuts later this year. We think they will take this June meeting and press conference as an opportunity To say so. "

In addition to maize weak employment, the government reports on Friday that employment growth is lower in March and April by 75,000 in total, giving three-month averages to 151,000. The average hourly wage was up 3.1%, one-tenth percent less than expected.

"What you have is the slower growth we have had since two years ago. A large part of what comes, we believe, is the effect of the tariffs on the industrial sector," says Tilley, referring to the three-month average. added just 3,000 jobs.

"The Customs situation has really changed our view of what can happen in the future," he said. "Our investment committee removed our overweight to US big cap and emerging markets as trade negotiations broke down. Adding to the possibility that import prices from Mexico, with those who go through, makes us much more pessimistic, and we would expect even weaker growth and employment. "

Tilley said in the week's weak ADP salary reports, showing only 27,000 jobs in May, and a large decline in small businesses, was very narrative as to how uncertainty affects the economy. Leasing usually starts with small businesses.

" Companies are nervous about tariffs and they are nervous about any kind of slowdown, you will see measures being taken faster by smaller employers than you would with 500 plus employers, who have longer term employment plans, "Tilley said.

Arone said the market will have a hard time getting ahead, even though the first stock reaction is that bad news is good because it brings Fed relief.

"It's a dilemma right now. Financial data continues to signal a slowdown. … Investors are concerned that tariffs will exaggerate this decline, but central banks promise their support. The market continues to struggle with what will be the most important thing going forward, says Arone. "Is it inviting monetary policy that will save the day, or should we get a trade agreement? I want to say that monetary policy is not enough alone. We need better financial data. We need trade issues to be solved in order for the market to move higher."

Correction: This story was revised to correct that the 95 percent chance of a Fed movement in July was for a price cut.