The odds of a Fed interest rate cut in July are getting slimmer and slimmer following the release of June’s nonfarm payrolls report.
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There is now a 93.3% chance that the federal funds rate will remain between 4.25% and 4.50% in July, up from 76.2% yesterday and 79.3% a week ago. The odds of a 25 bps reduction dropped to 6.7% compared to 23.8% yesterday and 20.7% a week ago.
Job Market Remains Strong as Unemployment Drops
With a stronger job market, the Fed has less of a reason to cut rates, as its dual mandate is to maximize employment and keep inflation around 2%. In June, nonfarm payrolls increased by 147,000 jobs, above the expectation for 110,000 jobs and increasing from the upwardly revised 144,000 jobs in May. In addition, the unemployment rate fell to 4.1% while economists were expecting a rate of 4.3%. The unemployment rate was 4.2% in May and April.
Stocks continue to surge higher despite the lower odds of a rate reduction. Stocks typically rise with lower interest rates because both companies and consumers are able to borrow at a lower cost, spurring spending and liquidity. The S&P 500 (SPX) is up by 0.78% at the time of writing.
