Futures traders on Thursday expected the Federal Reserve (Fed) to have an increasingly tenuous case for raising interest rates at its policy meeting later this month. The shift in sentiment came after an official government report showed that job openings in the United States (US) had fallen sharply for the second straight month.
Official data from the Bureau of Labor Statistics (BLS) confirmed that June’s draft nonfarm payrolls had only added 57,000 jobs. The lackluster figure was half of the market’s original forecast, putting to rest the initial narrative that the US labor market was in a strengthening phase.
Seema Shah, Chief Global Strategist at Principal Asset Management, viewed the weak labor data as strong evidence that the Fed’s monetary policy committee is now in a very comfortable position and free of any pressing pressure to tighten its monetary policy further in the near future.
The implication is that short-term interest rate futures exchange rates have now fallen to below 20%, with the probability of a July rate hike now below 20%. Capital markets are instead predicting that the Fed will most likely opt for a wait-and-see approach to maintain the status quo of current borrowing costs.
However, institutional investors are not yet ready to move into a full-blown easing phase, with Fed funds futures contracts still pricing in a 60% probability of a quarter-point rate hike in September. That probability has shrunk from the original 75% forecast before the release of the labor report.
