Prediction market traders have aggressively slashed bets on a Federal Reserve interest rate cut this year, despite new data revealing that the US economy lost jobs in July.
Markets Bet Against Fed Easing
On Polymarket, the probability of the Federal Reserve maintaining current rates at the September meeting has surged to 64%. Meanwhile, the only other significant scenario—a quarter-point hike—is currently priced at 35%. Bets on any form of rate cut have plummeted to a combined 3%, a dramatic shift over the past month in a market that has already seen over $21 million in trading volume.
US Payrolls Miss Expectations
This market sentiment stands in stark contrast to the latest labor report, which showed nonfarm payrolls falling by 23,000 in July, missing consensus forecasts of an 83,000 gain, according to the Bureau of Labor Statistics.
The situation was compounded by significant downward revisions for May and June, which saw a combined loss of 103,000 jobs. These adjustments have dragged the 12-month average of job growth down to a mere 34,000 per month.
Breakdown of Sector Losses
Job losses were widespread across key sectors:
- Local government education: -50,000
- Leisure and hospitality: -40,000
- Retail: -19,000
- Financial services: -14,000
While the healthcare sector remained a stable contributor, adding 22,000 jobs, this figure still trailed its recent growth trend.
Unemployment and Labor Force Contraction
Although the unemployment rate ticked down to 4.1% from 4.2%, the decline was driven by unfavorable factors. The labor force shrunk by 264,000, causing labor participation to drop to 61.4%—the lowest level since 1976, excluding the pandemic era. Additionally, the employment-to-population ratio slipped to 58.9%.
The Inflation Standoff
While such data would typically trigger immediate bets on rate cuts, persistent inflation has forced the Fed to maintain a tightening bias. The September FOMC decision has shifted from a debate over “hold versus ease” to “hold versus hike.”
Rodrigo Catril of the National Australia Bank noted that while the report challenges the immediate case for a rate increase, it fails to provide a clear signal for a dovish pivot. Inflation remains the primary focus of the central bank, leaving policymakers in a difficult position: potentially tightening into a contracting labor market—a scenario reminiscent of the 1970s.
What Comes Next?
Polymarket contracts indicate that this standoff is expected to continue, with “no change” priced at 68% for October and 59% for December. The probability of the upper bound of the target range reaching 4% remains at 35%.
Three critical data releases will determine the outcome before the Federal Open Market Committee meets on September 15:
- July Consumer Price Index (CPI) data, arriving this week.
- The preliminary annual benchmark revision to payrolls on August 28, which could fundamentally alter the perceived strength of the labor market.
- The August employment report on September 4, which stands as the final and most critical piece of evidence before the Fed’s decision.
Deixe um comentário