Soft Jobs Report Triggers Fed Rate Hike Scepticism

The U.S. economy unexpectedly shed jobs in July, adding to skepticism about a possible interest rate hike by the Federal Reserve next month.

According to the Labor Department's Bureau of Labor Statistics, nonfarm payrolls decreased by 23,000 last month after a downwardly revised 20,000 increase in June. Economists had forecasted a 57,000 rise in payrolls for June and an 80,000 increase in July.

The unemployment rate fell to 4.1% from 4.2% in June as the labor force participation rate declined further. The Fed's decision to leave its benchmark overnight interest rate unchanged last week may now face increased scrutiny, particularly with three members of the policy-setting committee preferring a quarter-percentage-point hike.

The market reaction was swift: stocks rose, U.S. Treasury yields fell, and the dollar index slipped alongside rate expectations. Fed funds futures now price in 40% odds of an interest-rate hike at the September meeting, down from 55% before the data.