At the end of last month, traders were seeing roughly 31 bps of rate cuts by the Fed for this year. That scaled up slightly going into the non-farm payrolls report at the start of the month as seen here. And in the aftermath of everything since last week, we're now going back to the drawing board again.
The first rate cut is more or less penciled in for November (~89% probability) while the September odds have been slashed to ~60% currently.
There is still a decent chance the latter could come into play, but it would need the disinflation process to pick up in the months ahead. Softer economic conditions will also be helpful in that regard. So, readings like the PMI data yesterday here is a setback for those hoping for quicker rate cuts.
An important detail to note in the report yesterday is the part on prices:
"Selling price inflation has meanwhile ticked higher and continues to signal modestly above-target inflation. What’s interesting is that the main inflationary impetus is now coming from manufacturing rather than services, meaning rates of inflation for costs and selling prices are now somewhat elevated by pre-pandemic standards in both sectors to suggest that the final mile down to the Fed’s 2% target still seems elusive."
Essentially, we're in debate now bouncing between one rate cut or two rate cuts this year. But considering the balance of risks, I reckon the probability is higher that we could even get no rate cuts as compared to three at the moment.