Federal Reserve Chair Jerome Powell paved the way for September rate cuts at the Jackson Hole central bank symposium, but the key still lies in whether the upcoming non-farm payroll data can provide decisive guidance for the pace and magnitude of rate cuts.

On August 23, Goldman Sachs Fixed Income, Currencies and Commodities (FICC) traders including Rikin Shah stated that markets had been in a wait-and-see mode before the Jackson Hole meeting. Powell's latest remarks have given the green light for September rate cuts, particularly against the backdrop of recent employment data revisions that have drawn Fed attention to the labor market. This exemplifies the "labor market downside risks" that Powell mentioned in the last FOMC press conference and reiterated in his Jackson Hole speech.

Goldman Sachs traders believe that if August non-farm payroll growth falls below 100,000, especially in the face of political pressure, it will help determine September rate cuts. Goldman Sachs notes that if the labor market weakens further, the window of opportunity is now. The firm believes that whether in an economic slowdown or normalization scenario, the Fed is highly likely to complete this round of rate cuts before the next Fed chair takes office, i.e., before the end of the first half of 2026.

**Employment Data Revisions Raise Concerns**

Goldman Sachs points out that future employment growth revisions are more likely to be negative for several reasons. First, the birth-death model may be overly optimistic; second, in past economic slowdowns, revisions to initial employment data have often been negative; third, ADP data questions the official report's healthcare sector employment growth; finally, household surveys now overestimate immigration and employment growth.

The firm emphasizes that employment growth prospects are equally grim. Similar to this year's activity growth slowdown, employment growth deceleration appears to stem from more than just direct impacts of trade and immigration policy changes. Goldman Sachs is particularly concerned that "catch-up hiring" in a few industries now appears to have ended, with employment growth outside these sectors falling to near-zero levels.

The firm states: "There is tremendous uncertainty about the equilibrium pace of employment growth. If the equilibrium level is indeed around 80,000 as estimated by Goldman Sachs Global Investment Research, then the three-month average of 35,000 growth is concerning."

Additionally, the significant revision magnitude in July data has also worried the Fed. The Fed may be concerned about what happens if an economic slowdown is coming and they react too late. This concern could prompt them to take more aggressive rate-cutting action.

**Rate Cut Path Depends on Labor Market Performance**

Looking beyond September, the window for employment data to show greater slowdown potential is now. Goldman Sachs states that markets have weathered the worst tariff uncertainty, and if the next two data releases rebound to higher levels, current weakness may just be a temporary fluctuation.

Goldman Sachs emphasizes that market attention to August non-farm data is extremely high, and given the magnitude of previous data revisions, this level of attention is concerning. The Fed is on track for September rate cuts and will thereafter "carefully watch" the U.S. labor market for signs of further sharp weakening to determine whether the subsequent path involves consecutive cuts or gradual normalization.

**Rate Cut Cycle May Complete by First Half of 2026**

Goldman Sachs believes that whether in an economic slowdown or normalization scenario, there is a high probability that the rate cut cycle will have ended when the next Fed chair takes office. Powell's Fed chair term ends in May next year.

Notably, the U.S. yield curve for June 26-28, 2026, currently appears flat, providing food for thought about future policy paths.

Goldman Sachs concludes that Powell has given the green light for September rate cuts, but what truly determines the pace of cuts and subsequent trajectory remains the August employment data. Based on multiple concerns, Goldman Sachs maintains a cautious stance on the labor market. If weakness is coming, it will be in the next few data releases; if not, current weakness may just be fleeting. Regardless, with rate cuts about to begin, Goldman Sachs believes the Fed is highly likely to end the rate cut cycle in the first half of 2026.