US investors are likely to hold back from a hasty interpretation of the job data. Rather, the strong job growth can be understood as a warning signal, but not yet as a final verdict on the Fed's monetary policy path.
However, the surprisingly strong jobs report may have taken the wind out of the sails of any remaining hopes for a pause in rate hikes at the September meeting. With solid data from the labor market, the compelling arguments for the US central bank are growing, and with them the room to maneuver for a potential further tightening of the infamous interest rate screws. Now, inflation trends and thus the question of whether the Fed can still hold its ground next month are likely to move back into center focus.
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US labor market data significantly stronger than expected – bets on interest rate hikes likely to increase
With 162,000 units, the official US labor market data (Non-Farm Payrolls) significantly exceeded the prior expectations (56,000). The unemployment rate stood at 4.1 percent, matching the previous month's level, which is also equal to the level from early summer 2025.
At the same time, there was an upward revision of the data for both previous months amounting to 55,000 additional units.
According to the CME Group's „Fed Watch Tool,“ 60.4 percent of market participants currently expect a total interest rate hike of a quarter percentage point, and 39.6 percent expect a rate pause. The interest rate band itself is currently at 3.50 to 3.75 percent.
Release of US inflation data casts a shadow ahead
Investors are likely to turn their attention to the release of US inflation data in the coming trading week on Friday (2:30 PM), which will need to be analyzed for monetary policy clues.
The ECB monetary policy meeting on Thursday is also likely to attract interest. While the key interest rate decision is expected at 2:15 p.m., the focus will shift to the speech by President Christine Lagarde at 2:45 p.m. The European central bank might raise the so-called deposit facility rate by a total of a quarter of a percentage point to 2.65 percent.
