July’s employment report was worse than a simple miss. The U.S. economy actually lost jobs, and by Friday morning traders were throwing out everything they thought they knew about the Federal Reserve’s next move.
Hours after the numbers landed, the probability on prediction market platform Kalshi that the central bank leaves rates untouched in September climbed to 65%. Ahead of the report, a hike and a hold were running roughly even. In the immediate aftermath of the Fed’s late-July meeting, the odds of a hike stood at nearly 58%.
For a single data print, that is a dramatic repricing.
The futures market moved too
The FedWatch tool from CME, which derives its odds from Fed funds futures trading, currently shows a 60% likelihood the Fed holds rates where they are. That reading was 45% on Thursday, and a week earlier it sat at one-in-three.
Two separate markets, both shifting the same way on the same day. Investors repriced the rate path, sending Treasury yields lower and equities higher.
Why a hike was ever on the table
Anyone who hasn’t tracked the argument playing out inside the Fed will find this easy to overlook. Higher energy prices linked to the U.S.-Iran war have led some members to push for higher rates. Three members of the Federal Open Market Committee dissented at the July meeting, taking the position that the bank ought to have raised rates instead of leaving them unchanged.
Those arguments followed a labor market that proved resilient through 2026 with steady job growth, an improvement on the more mixed picture of 2025. Tightening is far easier to justify when hiring is strong. A contracting jobs market removes that cushion.
Hiking into an economy that is already losing steam is another proposition altogether.
Next week is the real test
July’s Consumer Price Index arrives Aug. 12, and that figure will determine whether Friday’s repricing sticks.
Falling energy prices drove June’s month-over-month decline, the steepest in six years. Oil climbed in July, though, as tensions flared again in the Middle East — an argument against a second straight drop.
“Today’s weak payrolls print may ease the pressure on the Fed to raise rates at its September meeting, but next week’s inflation data will still likely be the deciding factor,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “If those numbers come in hotter than expected, a cooler labor market may not be enough to quiet the calls for hikes inside the Fed.”
September isn’t the whole year
Before writing off the hiking cycle, note this detail. CME’s FedWatch tool continues to show a 55% probability of a hike in October and close to 75% in December, even after Friday’s report.
Hikes weren’t removed from the table by the market — they were simply shifted out by a meeting or two. For anyone trading off Friday’s move, that difference is the whole position.