Following a stronger-than-expected U.S. jobs report, traders revised their outlook for Federal Reserve interest rate cuts on Thursday, now forecasting the first reduction to come in September rather than July.
Futures linked to the Fed’s benchmark rate now indicate only a 5% chance of a rate cut in July, sharply down from 25% before the Labor Department’s June employment report. The data showed nonfarm payrolls rose by 147,000, while the unemployment rate unexpectedly dropped to 4.1%, signaling continued labor market strength.
This upbeat report led traders to scale back expectations for rate cuts through the end of 2025. Markets now anticipate only two 25-basis-point cuts by December, down from the previously expected three, marking a notable shift in sentiment around the Fed’s policy direction.
Although expectations for a September rate cut have also been tempered, it remains the most likely window for the central bank’s first move toward easing monetary policy.
Overall, the updated rate outlook reflects a growing belief that the Fed will delay cutting rates due to the still-resilient labor market, which reduces the urgency for immediate stimulus despite earlier projections of more aggressive easing.
