September Rate Hike Chances Plummet After Disappointing Jobs Report

The US Federal Reserve's chances of raising interest rates in September have decreased after the release of July's hiring data. The data showed that the economy lost 23,000 jobs amid a modest decline in the unemployment rate to 4.1% from June's 4.2%. This shift was driven by workers leaving the labor force.

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. The probability that the Fed will hold rates next month rose to 60.4%, according to LSEG data. Some officials have expressed strong interest in a hike, or an openness to tighter policy depending on what lies ahead for the economy.

Thomas Barkin, Federal Reserve Bank of Richmond President, said the job market was 'very consistent' with his own analysis, but not loose or tight. However, some cautioned that this may not be the case given how central bankers are thinking. Omair Sharif, president of forecasting firm Inflation Insights, noted that Fed officials think the breakeven pace of job gains is fairly low.

Citibank analysts also weighed in, saying '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 predicted that hikes are unlikely and expect the next move to be a cut, with a base case for this to be delivered in October.