The Jobs Report Surprised To The Downside. Bets That The Fed Won’t Hike Rates In September Are Up

Traders increased their bets that the Federal Reserve won’t hike interest rates in September following a weak jobs report.

According to the CME Group’s FedWatch gauge of futures prices, odds of a hike fell to 44% from 58.3%. Stocks climbed and Treasury yields after the report.

The Bureau of Labor Statistics detailed that the U.S. economy unexpectedly shed 23,000 jobs last months.

The figure stands in sharp contrast with the 83,000 jobs analysts at the Dow Jones expected the market to add. Figures for May and June were also revised downward. The 12-month average now stands at 34,000.

Data showed that the unemployment rate fell to 4.1%, compared to the 4.2% expected by analysts, but the labor force participation did so as well (61.4%) and touched the lowest level in more than five years.

Most of the drop was explained by the local government education sector, which lost 50,000 roles. Retail shed 19,000 and financial activities 14,000.

Healthcare, in contrast, added 22,000 roles, but stood below the 12-month average of 36,000.

Private-sector payroll processor ADP had also reported weaker-than-expected hiring growth for July, adding to concerns that employers remain reluctant to expand their workforces.

The Federal Reserve kept rates unchanged last week, but three member of the Federal Open Market Committee (FOMC) voted for an increase.

Another report showed a mixed picture for the labor market. Outplacement firm Challenger, Gray & Christmas reported that announced layoff plans declined during July while corporate hiring plans increased compared with the previous month.

Elsewhere, an analysis released Wednesday by the Bank of America Institute suggested payroll growth may have accelerated during July based on customer deposit account data.

The research indicated employment gains were strongest among lower-income households, a shift that also translated into faster wage growth for those workers. According to the analysis, annual after-tax wage growth for lower-income households exceeded that of higher-income households for the first time since December 2024.

Bank of America researchers attributed the improvement largely to increased job mobility among lower-income workers. “What’s driving the pick-up in after-tax wage growth among lower-income households? Alongside strong job growth, we have also observed a rise in job-to-job movements disproportionately boosting lower-income pay growth,” the report said.