Fed Rate Hike Chances Plummet After Disappointing US Jobs Report

Financial markets responded to the July US hiring data by lowering their forecasts for a September interest rate hike from the Federal Reserve. The recent jobs report showed that the economy lost 23,000 jobs in July, with the unemployment rate declining modestly to 4.1% from June's 4.2%. However, this shift was driven by workers leaving the labor force rather than finding new employment.

The rate futures market has now priced in just a 43.9% chance of Fed tightening in September, compared with 57% before the jobs report, according to LSEG data. The probability that the Fed will hold rates next month rose to 60.4% versus 43.2% just before the data release.

Last week, the FOMC voted to keep the federal funds target rate range steady at between 3.5% and 3.75%, with three officials dissenting in favor of a rate hike. This decision was made as inflation continued to overshoot its target of 2%. The Fed's main inflation gauge, the personal consumption expenditures price index, was up 3.7% year-on-year in June.