Futures that settle to the Fed's policy rate now reflect almost no chance of a rate hike this month and only about a one-in-three chance of a rate hike in either of the last two rate-setting meetings this year. That's compared with about a 45% chance seen of a November rate hike before the data was released. Futures contracts are pricing in rate cuts starting in March.
The Fed raised short-term borrowing costs aggressively starting in March 2022 to fight 40-year-high inflation, most recently in July when it increased its target range for the benchmark rate to 5.25%-5.50%. Inflation has eased from its peak of 7% last summer to 3.3% last month, based on the Fed's preferred inflation measure, but policymakers say it is still too high and have been looking for the labor market to soften somewhat to keep downward pressure on prices.
Friday's jobs report, which showed the unemployment rate rose to 3.8% and hourly pay increases cooled to a 4.3% annual rate, delivered a dose of that, traders say.
"This report is likely to put the Fed on hold in September, and if we get more positive inflation news in September and October, the Fed is likely done, and we've seen the end of the rate hikes," said Peter Cardillo, chief market economist at Spartan Capital Securities.
(Reporting by Ann Saphir, Stephen Culp and Lucia Mutikani; Editing by Alex Richardson and Andrea Ricci)
By Ann Saphir
