August’s nonfarm payrolls showed sharp cooling across the board: hiring slowed, work hours shortened, and wage growth slid to levels not seen since the pandemic. Mizuho’s analysts argue this confirms that the Fed’s belief in a resilient labor market was too optimistic.
With the Fed’s September meeting looming, Mizuho believes a 25 basis point reduction is now the minimum outcome. If upcoming inflation data undershoots expectations, the bank sees a 50 basis point cut as the more likely scenario.
The bank added that the Fed’s track record on inflation forecasting has consistently fallen short, while its longer-term jobless rate targets—such as its 2026 outlook—no longer look credible.
Mizuho expects a prolonged easing cycle that will lower rates to about 3% by March 2026, a level it calls “neutral.” If a new Fed chair pushes for even stronger stimulus, rates could fall toward 2%, the bank suggested.
Still, Mizuho flagged one key risk: if inflation flares up again, the Fed could be forced to reverse course and withdraw at least part of its stimulus by 2027.
For investors, the report suggests a shift from debating whether the Fed will cut rates to how aggressively and how fast it will move. With growth slowing and inflation forecasts proving unreliable, Mizuho sees the central bank under pressure to act decisively.
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