July Payrolls Shock Sends Fed Hike Odds Tumbling
The US economy's July payrolls report delivered a shock to markets, unexpectedly shedding 23,000 jobs. This reversal slashed market expectations for a Federal Reserve interest rate hike in September and ignited a powerful rally across stocks and bonds.
The Labor Department's Bureau of Labor Statistics reported the weak numbers, defying consensus forecasts for a gain of 80,000. The unemployment rate ticked down to 4.1% from 4.2%, but this decline was driven by a contraction in labor force participation rather than a surge in hiring.
The report has significant implications for the Federal Reserve's September meeting. On the CME FedWatch tool, the probability of a hold jumped to 60%, up from 45% on Thursday. Prediction market platform Kalshi saw the odds of the central bank standing pat soar to 65%, a dramatic swing from roughly 50-50 before the data.
The jobs breakdown showed significant pockets of weakness, with local government education shedding 50,000 positions and retail losing nearly 20,000 jobs. However, healthcare added 22,000 jobs. Some analysts cautioned against reading too much into a single month's data, noting historical mid-summer softness.