v
Role of dollar in global economy and Fed policies
The US dollar plays an important role in the global economy as the world’s leading reserve currency. The monetary policy of the Federal Reserve not only affects the US economy. But it has an impact on the whole world. The dollar is seen to be stable in September 2025. But cracks in the US labor market are increasing the chances of the Fed cutting interest rates. This article will present a detailed analysis on these aspects. Also reduction in job opportunities But recent data shows that job opportunities in the US have reached a 10-month low in July 2025. But the rate of job layoffs still remains relatively low. And this indicates that companies are being cautious in terms of new recruitments. Possibly to assess the economic impact of tariffs.
Unemployment rate and wage growth
The unemployment rate is currently 4.2%, which is around the Fed’s estimate of full employment. But wage growth is happening at a rate of about 4% annually. Which is enough for workers compared to inflation. But not so much that inflation concerns increase. Also the role of the payroll report, which focuses on Fed employment. And Friday’s (September 5, 2025) jobs report will help set expectations for the central bank’s next few policy meetings. And about 75,000 jobs are projected to be added in August. While the unemployment rate can be seen at 4.3%. Payroll growth below 100,000 for four consecutive months would be the weakest period since the start of the pandemic.
Federal Reserve response and rate cut prospects Dollar in global economy
Traders are pricing in a nearly 100% chance of the Fed cutting interest rates later this month, up from 89% a week ago, according to CME FedWatch. They are also pricing in a 139 basis point easing by the end of next year. Labor market concerns, as well as the views of Fed officials, support their view that it is still early for the central bank to cut rates, fueling expectations of imminent rate cuts. James Knightley, chief international economist at ING, says the Fed is likely to cut rates significantly in the months ahead, as there is no inflationary pressure from the job market. But he added, “we expect them to cut rates by 25 basis points at the September, October and December FOMC meetings.”
Impact on interest rates
The Fed is scheduled to meet on September 16 and 17. The Fed has kept rates unchanged through 2025, largely because of concerns that tariffs could boost inflation. Disappointing employment data has raised more concerns, and Fed Chair Jerome Powell recently signaled that the Fed may need to implement cuts amid a changing balance of risks. As well as bond market concerns, investors have become increasingly worried about the financial health of major economies from Japan to Britain and the United States. The rise in yields reflects deteriorating financial conditions in some of the biggest advanced economies, where debt-to-GDP ratios are exceeding 100%, said Uday Patnaik, head of Asia fixed income and global emerging market debt at L&G’s asset management arm. But the problem here, he said, is that none of these countries are running a primary surplus, meaning revenues cannot even cover surplus spending.
Global bond market recovery on Dollar in global economy
MUFG currency strategist Lee Hardman said “Global bonds regained some lost ground yesterday which provided some temporary relief and helped stabilize foreign exchange markets. An auction of 30-year Japanese government bonds passed smoothly on Thursday, calming investor nerves while dovish comments from policymakers triggered a modest rally in Treasuries, pushing yields lower. And the US 30-year bond yield fell 1 basis point on the day to 4.888% from 5% on Wednesday, the highest in about a month and a half. With the dollar index and major currencies trading modestly higher the dollar traded relatively steady, reflecting investors’ wariness to make any big moves ahead of Friday’s payrolls report. The euro was firm at $1.1655 as was sterling at $1.3445, just above Wednesday’s four-week low.
Stock Markets and Investors’ Strategy
Wall Street Traders Traders continued to bet on the odds that the Federal Reserve would cut rates in September, as lackluster labor data boosted bonds. These bets also propped up stocks that snapped a two-day rout amid a rally in big tech. The drop in job openings to a 10-month low, just 48 hours ahead of the all-important U.S. payrolls report, has seen traders almost fully price in a Fed cut this month and project at least two cuts by 2025. Treasuries also bounced after a slide that pushed the 30-year yield to a close of 5%. The dollar fell as investors advised that investors should buy the dip in stocks, led by Barclays Plc strategists Emmanuel Cau. That global growth is better than expected and the Fed is likely to cut rates further.
The future trajectory of the labor market
For Evercore’s Krishna Guha, the soft job-openings report hardens the already high likelihood of a September Fed rate cut, making it even more difficult for Friday’s jobs report to derail the move. Also, Seema Shah of Principal Asset Management said that since the softening in labor demand has not been accompanied by a rise in layoffs or a pullback in spending, investors and policymakers should be wary of interpreting payrolls softness as an imminent recessionary signal. Implication for the US economy: Cracks in the US labor market and the Fed’s response to a potential rate cut have important implications for the global economy. But dollar stability and bond market concerns create both challenges and opportunities for investors.`
About the Author
