US Labour Market Weakness Dents Expectations for September Rate Hike

The US stock market has scaled back expectations of a Federal Reserve interest-rate hike in September following weak July labour market data, Reuters reported.

The jobs report showed that the US economy lost 23,000 jobs in July, with the unemployment rate edging down to 4.1% from 4.2% in June. The decline in jobless rate was largely driven by workers leaving the labour force rather than stronger employment growth.

The figures have raised concerns that the relative stability of the US labour market could be more fragile than previously thought, which may complicate the Fed's efforts to bring inflation under control.

Despite this, several Fed officials have maintained a hawkish stance on interest rates, with some arguing that monetary policy was not restrictive enough to bring price pressures back to the Fed's target. New York Fed President John Williams has indicated that further policy action could be appropriate if inflation is not moving towards the 2% target.

Citibank economists have taken a more dovish view, suggesting that the combination of weaker labour-market conditions and potentially cooler inflation would force policymakers to weigh inflation risks against the possibility of further deterioration in employment. They expect the Fed's next move to be a rate cut rather than a hike, with October as their base-case timing.