Labor Market Surprise Shifts Fed Rate Hike Expectations

The recent labor market data has shifted expectations for Federal Reserve interest rate hikes. The US economy unexpectedly lost 23,000 jobs in July, which contradicts forecasts of job growth.

This weaker-than-expected figure has strengthened the view that the labor market may be cooling faster than anticipated.

Treasury yields have moved lower, the dollar has weakened, and risk assets have found support as traders scale back expectations for another near-term rate increase.

The next US Consumer Price Index (CPI) report is expected to play a crucial role in determining whether inflation is still cooling or beginning to level off at an uncomfortable pace for policymakers.

Markets currently expect headline CPI to be 3.4% year-on-year, slightly lower than the previous reading of 3.5%. A softer number would reinforce the recent decline in rate-hike expectations and add pressure on the dollar.