The probability of a Federal Reserve interest rate hike in September has dropped sharply following a surprisingly weak July jobs report. According to the CME Group's FedWatch Tool, the chance of a 25-basis-point increase fell from 67% on July 31 to 44.4% by August 7, while Polymarket showed a similar decline from roughly 60% to 40%. Nonfarm payroll employment fell by 23,000 jobs in July, the third-largest monthly decline since the COVID-19 pandemic, against expectations of an 85,000-job gain. Trailing 12-month wage growth of 3.2% also lagged behind June's 3.5% inflation rate, complicating the Federal Open Market Committee's decision as it balances a fragile labor market against persistent inflation driven by President Donald Trump's policies. Core Personal Consumption Expenditures inflation has remained above the Fed's 2% target for 64 consecutive months, and the FOMC now faces a difficult choice at its September meeting between supporting job growth and curbing price pressures.
CME Group IncWeak jobs report lowers odds of a September rate hike, implying lower future policy rates.
Reduced rate hike expectations and weak jobs data push Treasury yields down.
