Swiss bank issues warning: this figure will impact the Fed's interest rate
The employment report reveals an unexpected decline in the number of employed and a sharp slowdown in hiring. Economists estimate that the Fed's next move will directly affect the markets as early as this September.
According to a review conducted by David Kohl, chief economist at Julius Baer Bank, employment growth in the USA deteriorated sharply in July, as the number of employed fell by 23,000 and previous increases were revised downward.
Hiring slowed across various sectors, while wage growth moderated to 3.2%. Although the unemployment rate fell to 4.1%, this was due to people leaving the workforce rather than stronger demand. This softer background reinforces expectations that the Fed will leave interest rates unchanged.
The US labor market cooled significantly in July, as the number of non-farm payrolls unexpectedly fell by 23,000 and the increases in the number of jobs in previous months were significantly revised downward. The average monthly increase in the number of jobs in 2026 has now fallen to 61,000.
The weakness in the labor market was driven by a decline in government jobs, as well as in leisure and hospitality and retail. An increase in construction spending could point to the economic support that comes with the accumulation of data centers and other AI infrastructure. Overall, cyclical industries added fewer jobs than in previous months.
The softer labor market also affected earnings growth, as the annual average hourly wage slowed from a revised 3.4% in June to 3.2%. Despite the slowdown in hiring, the unemployment rate fell to 4.1%, as more people who lost their jobs left the workforce, thereby mechanically pushing the unemployment rate downward. Temporary and permanent layoffs increased, confirming the softer labor market.
Weaker job growth and moderating earnings growth assist the Fed in its efforts to lower inflation by reducing the risk that higher energy prices will be passed on to other prices and wages. Money market pricing indicates a lower probability that the Fed will raise its policy rate at its next meeting on September 16.
"Our confidence in our forecast that the Fed will leave its policy rate unchanged for the remainder of the year has increased," the economist noted.
