Fed Rate Hike Expectations Ease After Weaker U.S. Jobs Growth

New U.S. employment data has reduced market expectations that the Federal Reserve will increase interest rates later this month.

According to the U.S. Labor Department's Bureau of Labor Statistics, nonfarm payrolls rose by 57,000 in June, falling well below expectations and marking a slowdown in hiring over the past two months.

The weaker employment figures have led investors to believe the Fed faces less immediate pressure to tighten monetary policy. Principal Asset Management Chief Global Strategist Seema Shah said the latest report weakens the recent narrative of improving labor market conditions.

Following the report, traders in short-term interest-rate futures estimated the probability of a July rate hike at below 20%. However, markets still view a rate increase in September as the more likely outcome.

Fed funds futures now indicate roughly a 60% chance of a September rate hike while the current policy range remains at 3.50% to 3.75%. Before the jobs report, markets had priced in about a 75% probability of a September increase.