Rate Hike Chances Cut as US Jobs Data Shows Unexpected Decline

US rate futures have reduced their chances of a September rate hike after recent jobs data showed the US economy lost 23,000 jobs in July. The unemployment rate did drop to 4.1 percent from June's 4.2 percent, but this was due to workers leaving the labor force.

The Federal Reserve's decision to keep interest rates steady at between 3.5 percent and 3.75 percent has been met with some skepticism from officials who believe a rate hike is necessary to tackle inflation. The personal consumption expenditures price index rose 3.7 percent year-on-year in June, overshooting the Fed's target of 2 percent.

However, Federal Reserve Bank of Richmond President Thomas Barkin downplayed the importance of the July jobs report, stating that it was 'very consistent with how I've been seeing the labor market, which is, it's not loose, it's not tight'. Despite this, futures markets have reduced their expectations for a rate hike in September to 43.9 percent from 57 percent before the data release.

Citibank analysts believe that 'softer labor market data and upcoming cooler inflation means Fed officials will once more need to balance upside risk to inflation with downside risk to employment'. They predict that the next move is a cut, rather than a hike, with their base case being a rate cut in October.