Nonfarm Payrolls May Influence Fed Rate Hike Odds

Market participants are awaiting the release of the U.S. Employment Report for July on Friday, as attention turns to its potential implications for the Federal Reserve’s monetary policy normalization.

Following a preliminary jobs data release for July earlier in the week, investors are now focused on the official government statistics. This report is expected to provide important insights into the labor market’s strength, especially after the previous two reports showcased stark contrasts. June’s report indicated a significant addition of 287,000 jobs, whereas May’s figures reflected only 11,000, marking the weakest growth in six and a half years.

The U.S. Labor Department is scheduled to publish the report at 12:30 GMT (8:30 AM ET) on Friday. The consensus among analysts suggests that the data will reveal a job growth of 180,000. Additionally, the unemployment rate is anticipated to decrease from 4.9% to 4.8%, while average hourly earnings are projected to rise by 0.2%, following a 0.1% increase the previous month.

A strong jobs report could indicate an improving economy and bolster arguments for raising interest rates in the near future. Conversely, a disappointing figure could create uncertainty about the economic outlook, potentially postponing any decisions regarding tighter monetary policy.

Commerzbank warned that market participants are increasingly looking for positive economic data to justify a rate increase by the Fed. The disappointing GDP growth of 1.2% released last week reduced the chances of an interest rate hike this year.

As of now, the Fed funds contract for December suggests that traders see a 33% probability of a rate increase following the release of the GDP data, a drop from 43% the week prior. Additionally, while Wednesday’s report showed better-than-expected job creation, it still indicated that any tightening of policy is unlikely until June 2017.

However, skepticism remains about the impact of Friday’s jobs report on the Fed’s outlook. Strategists at Spreadco highlighted that the next Fed meeting isn’t scheduled until September 20-21. They noted that by that time, July’s employment data may be considered outdated, and the market already appears to doubt the Fed’s ability to tighten monetary policy this year, particularly ahead of the presidential election in November.