Employers lose 114,000 jobs in July, Fed hike odds drop

U.S. employers shed 114,000 jobs in July, the first drop in eight months, and markets immediately slashed the odds of a Federal Reserve interest-rate hike in September.

The weaker-than-expected jobs tally, released Friday morning, flipped investor expectations. Prediction markets now give a 65 % chance the Fed will stand pat at its September 17–18 meeting, up from about 50 % the day before. On CME’s FedWatch tool, traders moved the probability of no change to 60 % from 45 % on Thursday and just 33 % a week earlier. Treasury yields fell while stocks climbed as investors priced in slower tightening.

The reversal reflects concern that a cooling labor market could ease pressure on the central bank to raise rates. At the July 30–31 meeting, three Fed officials dissented, arguing for an immediate hike to fight inflation stoked by higher oil prices after the U.S.-Iran conflict flared again. Yet Labor Department figures show job growth has been uneven since 2025 and may be weakening further. A softer jobs picture makes additional rate increases riskier because tighter credit could restrain an already fragile expansion.

Investors are now waiting for the July inflation reading, due August 12. In June, consumer prices posted their largest monthly drop in six years as gasoline costs fell, but oil prices rebounded in July on renewed Middle East tensions. “Today’s weak payrolls may take some pressure off the Fed in September, but next week’s CPI will still decide the debate,” said Ellen Zentner, chief U.S. economist at Morgan Stanley. Even so, traders still see roughly a 55 % chance of a hike in October and nearly a 75 % chance in December, meaning rate increases later this year are far from ruled out.