Fed Rate Hike Odds Plummet After Weak July Jobs Report
The latest jobs report for July has sent shockwaves through financial markets, casting doubt on the likelihood of an interest rate hike by the Federal Reserve in September.
Odds on prediction market platform Kalshi that the central bank holds rates steady at its meeting next month jumped to 65%, up from around 50-50 before the report was released. CME's FedWatch tool also saw a significant shift, with odds of maintaining rates increasing to 60%.
The jobs report showed the US economy shed jobs in July, which has led investors to reassess their expectations for the Fed's next move. While some members of the Federal Open Market Committee have called for rate hikes amid higher energy prices, the weakening labor market may temper this enthusiasm.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said the inflation data due out next week will still be a key factor in determining the Fed's decision. If inflation numbers come in hotter than expected, it could override concerns about the labor market and lead to rate hikes despite the jobs report.