Traders are now pulling back on bets on a Federal Reserve (Fed) rate cut in July following stronger-than-expected US jobs data for June. The US unemployment rate fell below forecasts, while new jobs also exceeded analysts’ expectations. This further strengthens the Fed’s case for waiting and seeing the impact of tariffs before taking action to cut interest rates.
Polymarket data shows there is a 94% chance that the Fed will keep interest rates on hold at the Federal Open Market Committee (FOMC) meeting on July 30. Meanwhile, CME FedWatch data also shows traders have pulled back on bets on a rate cut that month.
Previously, the odds of a 25 basis point rate cut had risen to around 25% on hopes that Jerome Powell and the FOMC would bow to pressure from Donald Trump. However, after the US jobs data was released, the odds plunged to just 4.7%.
Data from the US Bureau of Labor Statistics showed nonfarm payrolls rose by 147,000 in June, well above expectations of 110,000. Meanwhile, the unemployment rate fell to 4.1%, lower than the 4.3% forecast.
Markets had previously expected a rate cut by the Fed in July on the assumption that a slowdown in the labor market could prompt Powell and the FOMC to act.
Powell himself had previously stated that he was still open to the possibility of a rate cut in July when he spoke at the ECB forum on Central Banking in Europe this week. The Fed chairman stressed that he could not yet say whether a rate cut would happen or not, and that it all depends on the data that will be received.
However, the latest employment data suggests that there is no urgent need for the Fed to act hastily. The labor market remains strong, and Powell has repeatedly stressed that the Fed is now in a comfortable position to wait and assess the impact of Trump's tariffs before taking action.
