A September to Remember?

Rates, Labor, and Market Domino Effects

Setting the Stage

As markets came back from the long Labor Day weekend, labor itself was in the spotlight. On September 5, the Bureau of Labor Statistics (BLS) released US unemployment data showing the unemployment rate ticking up to 4.3%. This follows the July report, released on August 2, which posted a 4.1% unemployment rate and included large downward revisions to job growth estimates from previous months. Normally, revisions to jobs data don’t make headlines. But this summer, they did. The fallout from the July report was swift: BLS Commissioner Erika McEntarfer was removed and replaced by interim commissioner William Wiatrowski. Then, on September 9, the annual job‐data benchmark revision was released, showing over 900,000 fewer jobs in the payroll/employment survey (CES) than previously estimated. What’s typically a quiet, technical process has become a focal point in a labor market under scrutiny.

That matters because the BLS isn’t just a data shop; it sets the pulse for markets. CPI, payrolls, productivity, and labor force participation all run through the BLS pipeline. Revisions are a normal part of ensuring accuracy, but when they’re unusually large, they can undermine confidence in the data’s integrity. Add to that the perception that leadership changes are being driven by how the numbers reflect on the administration, and statistics that should remain neutral risk becoming, or at least appearing, politicized. In that kind of environment, investors lose a key anchor for interpreting where the economy is headed. For institutions, that translates into greater uncertainty around the very data that informs policy, pricing, and portfolio strategy.

The Fed in the Crosshairs

President Trump has been clear in his demand: lower short-term rates, faster. The recent turmoil at the BLS has only given him cover to push harder. Federal Reserve Chair Jerome Powell, speaking at Jackson Hole on August 22, signaled the start of a rate-cut cycle in September, citing weakness in jobs data despite stickier inflation readings. But for the President, a quarter-point cut and gradual easing path are far too restrained. He has called for front-loaded, larger cuts designed to jolt markets, accelerate growth ahead of the election cycle, and undercut recession fears before they take root, offsetting the drag of tariffs and trade frictions.

That’s the heart of the tension. The Fed prefers incremental, data-driven adjustments. The White House wants visible, immediate relief, especially with political timelines in play. The risk is not just policy divergence, but credibility. If the Fed, like the BLS, appears to be bending to political pressure rather than economic evidence, market confidence in its independence could also erode, setting off a compounding domino effect with lasting consequences for rates, currencies, and risk premia.

Weighing The Data

Recessions remain notoriously hard to call in real time, but one tool has a proven track record: the Sahm Rule, developed by former Fed economist Claudia Sahm. It signals recession risk when the three-month moving average of unemployment rises by 0.5 percentage points or more from its twelve-month low. 

Today, the US isn’t in that territory yet, but the direction is worrying. If unemployment inches higher over the next two to three months, the Sahm Rule could be triggered, providing markets with an unmistakable red flag. The takeaway: the trajectory matters more than any single print.

At the same time, policy contradictions muddy the waters. Tariffs and immigration restrictions, signature policies of the administration, directly constrain hiring. That means the very levers meant to support employment are, paradoxically, tightening the labor market further. For investors, this underscores that headline numbers must be interpreted in the context of structural policy choices, not just cyclical noise.

Investment Implications: Duration Beyond Bonds

At Crewcial, we’ve often emphasized that “duration” isn’t just a fixed-income term; it applies to equities too. Small-cap companies, with longer runways to profitability and heavier reliance on debt financing, are especially sensitive to interest-rate shifts:

• In 2022, when the Fed raised short-term rates by 500 basis points, the Russell 2000 fell 20%, a clear reminder of how vulnerable small caps are to tighter credit.
• The inverse is now in play. If the Fed cuts aggressively over the next twelve to 18 months, we expect small caps to be among the biggest beneficiaries, combining depressed valuations with cheaper financing costs.
• The opportunity is significant, but not without some risk: cuts must reflect stabilization, not panic. If easing signals deeper structural weakness, the upside could be short-lived.

However, taken together, these dynamics make a very compelling case for small caps as a timely opportunity well-positioned to rebound if the Fed follows through with easing. 

Our Take

• Fed credibility is on the line. Faster cuts may soothe markets in the short term, but if driven by politics rather than data, they risk higher volatility and diminished investor trust.
• The labor market is the linchpin. Revisions matter. Watch the Sahm Rule’s trend, not just the headline numbers.
• Portfolio positioning strongly favors small caps. Rate-sensitive, undervalued, and poised to rebound if policy eases without tipping into recession.

Bottom Line

September is shaping up as a pivot point. As of September 17, 2025, the Federal Reserve reduced the federal funds rate by 25 basis points to 4.00-4.25% and signaled through its dot plot that two more cuts are likely before year-end. The challenge will be balance: move too cautiously and markets may punish hesitation; move too quickly under political pressure and the Fed risks its independence. For investors, the imperative is clear-eyed discipline: shield portfolios from policy noise while positioning for opportunities best placed to benefit as easing takes hold. At Crewcial, we find clarity of purpose to be the best safeguard.