The sky’s falling. It fell this time last year too.

Parallels between this week and the same week a year ago were hard to ignore Friday. The Fed passed up an opportunity to cut rates preemptively in part on the excuse that the US labor market’s resilient, only for the July jobs report to argue otherwise. And a lackluster ISM manufacturing release was punctuated by a very poor read on the survey’s employment metric.

The reaction across the US rates complex was predictable. And predictably sharp at the front-end, where twos rallied more than 20bps, the most since — you guessed it — the August 2024 growth scare.

As the figure shows, twos are doing their best Donald Trump impression: “DROP THE RATE!” That said, the front-end inversion (shown in red) isn’t anywhere near the ~200bps observed in the lead-up to the Fed’s 50bps cut in September of last year.

After 100bps of cuts, the Fed succeeded in eliminating the inversion headed into 2025. Subsequently, it deepened as twos rallied 80bps from the January yield highs to the April lows. At ~60bps inverted as of Friday, FF/2s probably has it about “right” in terms of serving as a proxy for where Fed funds “should” be.

Generally speaking, the current policy rate’s seen as 50bps restrictive. Friday’s jobs report argued pretty strongly in favor of the notion that monetary policy restriction’s no longer necessary or even desirable. Fed funds should be at neutral, and two quarter-point cuts would do the trick. That’s what the front-end inversion’s suggesting, and the key point (or my point, anyway) is that it’s been saying more or less the same thing since “Liberation Day.”

The odds of a September cut — which waned to just 40% following Powell’s hawkish press conference on Wednesday — moved back in favor of a move at the next meeting in the wake of Friday’s jobs report. I’d suggest a September move was never actually in question. I think Powell was just holding the rhetorical line to make a point about Fed independence.

The figure gives you some context for the year. In and around the April tariff melee, markets expected 100bps of cuts. After Powell on Wednesday, that pricing was inside of 35bps. As of this writing, it’s 60bps, which is to say two quarter-point cuts fully priced plus 40% odds of a third.

Needless to say, the jobs report made Chris Waller and Miki Bowman look good, where that means helped make the case they were correct to dissent this week in favor of a cut. Both published a rationale Friday.

“A host of data argues that monetary policy should now be close to neutral, not restrictive,” Waller said. “While the labor market looks fine on the surface, once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased.”

For her part, Bowman observed that so far, “firms have resisted reducing their work forces in response to the slowing economic conditions and have appeared to be more willing to reduce profit margins as they are less able to fully pass through higher costs and raise prices given the weakness in demand.” In the event demand doesn’t pick up, she went on, “firms may have little option other than to begin to lay off workers, recognizing that it may not be as difficult to rehire given the shift in labor market conditions.”

Meanwhile, Trump’s labor secretary Lori Chavez-DeRemer was blunt. “We need those interest rates lowered,” she told Fox Business.