Is the Fed ready to go big? Analysts debate jumbo rate cut after soft jobs data

Eva is a fellow on Fortune's news desk.

The case for a bigger rate cut is gaining momentum.

After another dismal jobs report, some economists say the Federal Reserve may now have to move more aggressively at its September meeting, with a 50-basis-point cut potentially on the table.

The tally for August followed a shocker for July, and the latest report showed payroll growth stalling, unemployment climbing to its highest level in nearly four years, and months of more downward revisions.

Nonfarm payrolls rose

“A 50-basis-point cut is now in play,” analyst Jamie Cox of Harris Financial Group wrote in a note. “The Fed’s free pass on the labor market has ended.”

Kevin Hassett, the current White House National Economic Council Director and a top contender to be nominated as Fed chair, said he expects a jumbo rate cut to be weighed

 Others were even more cautious.“I don’t view the current results as soft enough to warrant 50,” Larry Werther, chief U.S. economist at Daiwa Capital Markets, wrote in a note, citing lingering inflation pressures. 

Joseph Brusuelas of RSM echoed that view, adding, “One will hear talk of a 50-basis-point cut, which we think is premature. It would take a large downside surprise in the producer price index and consumer price index for that to happen.”Still, ING’s James Knightley said, “Some investors are questioning whether the Fed could cut

For now, most Wall Street economists still expect the Fed to cut

Futures tied to the Fed’s benchmark rate put odds of a half-point cut at around 11.7% after the jobs data, up from 0% on Thursday.

Meanwhile, the yield on the 10-year Treasury tumbled 9.2% basis points to 4.084% on expectations for more aggressive easing.

The symbolism of an emergency cut

A bigger move would carry heavy symbolism: it could amount to an admission that Fed Chair Jerome Powell, who spent the better part of the past year warning against cutting too quickly, may have waited too long. President Donald Trump has already been hammering that message, accusing Powell of being “Mr. Too Late” and tightening monetary policy to a knot. A jumbo cut in September could be read as belated validation of that critique.

Still, the Fed is boxed in

 “It’s a tightrope,” Brusuelas said. “The labor market is deteriorating, but inflation is not yet back to target. The Fed’s job is getting harder, not easier.”

The outcome may hinge on next week’s benchmark revisions to payroll data, which could show hundreds of thousands fewer jobs created over the past year than previously reported. If the labor market proves even weaker than the official data already suggests, the case for a bolder half-point cut in September will only grow louder.