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US employment data opens the door to a big rate cut in September
Traders have been increasing their bets in the last few moments of trading, today, Friday, that the Federal Reserve will start easing monetary policy in September with a big interest rate cut of half a percentage point, not a quarter point as expected.
This comes after government data showed that employers added far fewer workers than expected last month, in addition to the unemployment rate rising more than expected, which warns that the US economy will enter the recession tunnel if the Fed does not cut interest rates further at the next meeting.
Interest futures contracts now reflect a probability of about 70% of a half-percentage point rate cut next month, compared to what was seen before the report as a 70% probability of a more usual quarter-percentage point cut.
The monthly US employment report issued by the Bureau of Labor Statistics showed that the US economy added fewer jobs than expected in July, in addition to the unemployment rate rising and recording a higher rate than expected and higher than the previous reading, with average hourly wages declining annually and monthly compared to the previous reading.
The unemployment rate was expected to hold steady at 4.1% in July, the same as the previous reading in June, but the jobless rate unexpectedly rose to its highest level in nearly three years, the latest sign of a broader slowdown in the U.S. labor market.
The U.S. private sector added 114,000 jobs in July, compared with a revised 179,000 previously.
On the other hand, the U.S. unemployment rate was 4.3% in July, compared with analysts’ expectations for a 4.1% reading.
