Bets on US Federal Reserve rate hike in October fall as job market cools

Weaker-than-expected jobs growth in the US pushed traders to reduce bets on another interest rate hike by the Federal Reserve this year.

The US economy added 29,000 jobs last month, the Labor Department reported, well below economists’ estimate of 90,000. Payroll growth for August was also revised lower, while the unemployment rate edged up to 4.2% from 4.1%.

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The employment data prompted traders to scale back expectations for another Fed rate increase. Interest-rate futures were pricing in less than a 20% chance of a hike at the Fed’s October meeting, down from more than 25% previously.

Expectations for a December increase also eased, although markets still put the probability at nearly 90%.

The labor-market data comes after the Fed raised its benchmark short-term interest rate by 25 basis points last month, as policymakers sought to bring inflation back toward their 2% target.

Fed officials have indicated that another rate increase could still be warranted before year-end if inflationary pressures remain elevated, particularly amid the impact of the Iran war and other supply shocks. However, the latest employment figures add to the case for caution, especially if labor-market weakness persists.

The data leaves the Fed balancing two competing risks: keeping rates high enough to contain inflation while avoiding excessive pressure on an already weakening labor market.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)