USA: Sharp decline in the probability of an interest rate hike following weak employment data

The probability of an interest rate hike in the USA by the Federal Reserve decreased today following the weak employment report for July, as indicated by US interest rate futures. The interest rate futures market is currently pricing in a probability of only 43.9% for an interest rate hike by the American central bank in September, compared to 57% before the employment report. The probability that the Federal Reserve will leave the interest rate unchanged next month rose to 60.4%, compared to 43.2% just before the data was released.

The concern following the weak employment data is that an interest rate hike will push the American economy into a recession and increase unemployment. Furthermore, a "hot" labor market could push inflation upward, while the low figures reduce the intensity of this concern.

According to the employment report, the number of jobs in July decreased by 23,000, while the average analyst forecast was for an addition of 83,000 jobs. However, the unemployment rate fell to 4.1%, while the expectation was 4.2%, as it was in June. In June, 20,000 jobs were added to the American economy (a revised figure from 57,000 jobs).

It also emerges that the average hourly wage rose by 2 cents in July. The annual growth rate of the average wage fell to 3.2% from 3.4% in June, while an increase to 3.5% was expected. This figure may also reduce the central bank's concern regarding a renewed outbreak of inflation.