Traders adjusted their expectations for Federal Reserve interest rate cuts on Thursday following a stronger-than-anticipated U.S. jobs report, now predicting the first cut will come in September rather than July.
Futures contracts tied to the Fed’s policy rate showed just a 5% chance of a July rate cut, down significantly from 25% before the Labor Department released its June employment figures. The report revealed U.S. nonfarm payrolls increased by 147,000 in June, while the unemployment rate unexpectedly fell to 4.1%.
The resilient job market has prompted traders to reduce their expectations for total rate cuts in 2025, now anticipating just two quarter-point reductions by December instead of the three cuts previously expected. This represents a significant shift in market sentiment regarding the Fed’s monetary policy trajectory.
Traders also lowered the probability of a September rate cut, though it remains the most likely timing for the Fed’s next move to ease monetary policy.
The revised rate cut timeline reflects market participants’ belief that the still-strong job market will give the Federal Reserve less urgency to reduce borrowing costs in the near term, despite previous expectations for more aggressive easing.