Non-Farm Payrolls Deflate Rate Cut Hopes with 147,000 New Jobs; Economists Rule Out July Fed Cut

TradingKey - On Thursday in the US, a stronger-than-expected June non-farm payroll report dashed hopes for a rate cut in July. Joe Brusuelas, chief economist at RSM, declared a July rate cut completely off the table, while Nick Timiraos, known as the "Fed whisperer," suggested that the June jobs data might lead Fed officials to adopt a wait-and-see approach over the summer.

The report revealed a 147,000 increase in jobs for June, surpassing the anticipated 106,000. The unemployment rate unexpectedly dropped to 4.1%, the lowest since February, beating forecasts of 4.3%. This indicates that despite uncertainties from tariffs and immigration policies, the labor market remains robust.

Nick Timiraos noted that Fed Chair Jerome Powell insists the strong labor market affords the Fed more time to assess the impact of this year’s policy changes. Joe Brusuelas opined that the data fully supports Powell’s view that the current economic conditions don't necessitate immediate intervention.

Steve Sosnick, chief strategist at Interactive Brokers, also commented that the release of the employment data swiftly extinguished hopes for a rate cut, with the market clearly reflecting the Fed's stance.

Following the data release, traders' expectations for a July rate cut reversed. According to the CME FedWatch tool, only 4.7% now bet on a July rate cut, down from 23.8% the day before; meanwhile, the odds of pausing rate cuts in September rose to 30.9% from 6.3%.

Treasury yields were also impacted. The yield on the 2-year Treasury note, which is highly sensitive to policy expectations, climbed to as high as 3.915%, and the benchmark 10-year Treasury yield soared to 4.382%.

Investors now await additional non-farm payroll and CPI data before the September Fed meeting to predict the direction of Fed policy. Kevin Flanagan, head of fixed income strategy at WisdomTree, stated that conventional wisdom suggests any tariff-induced inflation would become apparent before the September meeting. If the labor market remains strong by then, the Fed could face challenges in making rate cuts.