Fed Hike Odds Weaken Amid Disappointing NFP Report

Rabobank's Bas van Geffen has reassessed the odds of a Federal Reserve rate hike in September, citing weaker US Nonfarm Payrolls (NFP) and a drop in labor supply.

The NFP report showed a -23,000 jobs print and a 37,000 downward revision to the June estimate. This indicates that employment growth has been slowing for several months and downside risks to the labor market have not disappeared entirely since last year's three interest rate cuts.

Van Geffen notes that both dovish and hawkish factions at the Fed can find support in the latest employment figures, with upcoming US Consumer Price Index (CPI) and inflation expectations still crucial for rate expectations.

The labor market data may have removed some urgency, reducing the odds of a September hike. However, incoming inflation data remain key, particularly consumer's longer-term inflation expectations, considering recent sensitivity of US Treasury yields to upside inflation risks.