Federal Reserve Chairman Jerome Powell has signaled to markets that a rate cut is on the table, but said the timing of a cut would depend on getting a “clearer picture of things.” A clearer picture could come with the only jobs report that the Fed will receive before the next policy-setting meeting on July 30-31.

The Fed is now acknowledging that it is undershooting its 2% inflation target, but said the labor market “remains strong” — marking a bright spot in one of the Fed’s dual mandates. A darkening of the outlook on the employment front should, in that case, bolster the case for a rate cut.

JPMorgan Chase’s Michael Feroli wrote to clients that Powell’s commentary has already pushed his team to pull forward expectations for cuts to July and September of this year. But a bad reading on employment data could reinforce the case for steeper cuts.

“While the risk of more than 50bp of cuts is still not our baseline outlook, any further evidence of deterioration in labor market activity should motivate well more than 50bp of total cuts this cycle,” Feroli wrote June 19.

The Bureau of Labor Statistics will release the next jobs report, covering the month of June, on July 5.

The employment situation

The Fed has a dual mandate: stable prices and maximum employment.

Since the May 1 meeting, the Fed has acknowledged that it is “running below” its 2% inflation target, which Powell said was the result of “weaker global growth” that is baked into policymakers’ worries over near-term economic conditions. Translation: the Fed is having issues with its price mandate, making the case for more accommodative policy.

But things have looked far better on its labor market mandate. The Fed has continued to refer to labor markets as “strong,” the same language that it used as it notched rates up between 2017 and 2018.

Asked by Yahoo Finance if the labor market is now closer or farther from maximum employment, Powell said Wednesday “we have to be closer,” citing more job creation.

“The unemployment rate is lower. You know, by just lots and lots of numbers, the labor market is in a good place,” Powell said.

But Fed Vice Chairman Richard Clarida told Bloomberg Friday that he did see a “soft print” on the jobs report for May, when the economy added only 75,000 non-farm jobs compared to expectations for 175,000.

Simona Mocuta, an economist at State Street Global Advisors, told Yahoo Finance that the June jobs report will be closely watched, in addition to any developments on the trade front as world leaders meet at the G-20 next week.

“The labor market plays into the timing of the cut,” Mocuta said. “I think you get 50 basis points in July only if it coincides with a bad trade outcome out of G20 and bad jobs.”