Fed likely to pause rate hikes after jobs slump, economists say
A sharp decline in July hiring and revised lower employment figures have shifted market expectations toward a Federal Reserve hold on rates in September, though some economists still anticipate a later increase.
After a disappointing July jobs report that showed employers cut 23,000 positions, traders’ expectations for a Federal Reserve rate hike in September fell sharply. CME FedWatch data indicated the probability of a hold rose to 56% on Friday, up from 45% the day before.
The Labor Department also revised down May and June hiring numbers by a total of 103,000, suggesting the labor market is weaker than previously thought. A softer job market complicates the Fed’s dual mandate of sustaining employment while curbing inflation, which remains above the central bank’s 2% target.
"The chances of holding just went up pretty significantly today," senior economist Cory Stahle of Indeed Hiring Lab told CBS News. "What we see in the jobs report maybe says that the Federal Reserve, at the very least, might have to think about the timing of a potential rate hike, if not think about some rate cuts on the table as well, if we continue to see this type of deterioration in the labor market."
Inflation eased to an annual 3.5% in June, down from 4.2% in May, but remains above the Fed’s goal. Some analysts argue that the central bank will still need to raise rates later in the year to bring inflation down.
"The U.S. labor market is stalling again, and that is going to make the Federal Reserve's job harder and life for job seekers rough," Heather Long, chief economist at Navy Federal Credit Union, said in an email.
Long added that wage growth has been largely offset by rising consumer prices, leaving many households under financial pressure.
"Most Americans are getting squeezed by high inflation," she said.
According to Indeed Hiring Lab, hiring has slowed as businesses grapple with policy and geopolitical uncertainty, including high energy costs, tariffs and immigration restrictions.
Despite the shift in market odds, some economists maintain a forecast of a 0.75-percentage-point rate increase later in the year, emphasizing the Fed’s priority on inflation over employment concerns.