The July jobs report didn’t just disappoint. The U.S. economy shed jobs outright, and traders spent Friday morning tearing up their assumptions about what the Federal Reserve does next month.
Within hours of the release, the odds on prediction market platform Kalshi that the central bank holds rates steady in September jumped to 65%. Before the report, the market was close to a coin flip between a hike and standing pat. Right after the Fed’s late-July meeting, hike odds sat at almost 58%.
That’s a big repricing for one data print.
The futures market moved too
CME’s FedWatch tool, which reads odds off Fed funds futures trading, now puts the chance the Fed maintains rates at 60%. On Thursday it was 45%. A week ago it was one-in-three.
Two different markets, same direction, same day. Treasury yields fell and stocks rose as investors priced in the new rate path.
Why a hike was ever on the table
This is the part that’s easy to miss if you haven’t been following the Fed’s internal argument. Some members have been pushing for higher rates because of higher energy prices tied to the U.S.-Iran war. At the July meeting, three members of the Federal Open Market Committee dissented, arguing the bank should have raised rates rather than held them steady.
Those calls came after the labor market showed resiliency in 2026 with consistent job growth, following a more mixed picture in 2025. A strong jobs market gives you room to tighten. A shrinking one doesn’t.
Raising rates to slow an economy that’s already slowing is a different bet entirely.
Next week is the real test
The Consumer Price Index for July lands Aug. 12, and it’s the number that decides whether Friday’s move holds.
June prices posted their biggest month-over-month fall in six years as energy prices fell. But oil rose in July amid renewed tensions in the Middle East, which cuts against a repeat.
“Today’s weak payrolls print may ease the pressure on the Fed to raise rates at its September meeting, but next week’s inflation data will still likely be the deciding factor,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “If those numbers come in hotter than expected, a cooler labor market may not be enough to quiet the calls for hikes inside the Fed.”
September isn’t the whole year
Here’s the detail worth writing down before you conclude the hiking cycle is dead. Even after Friday’s report, CME’s FedWatch tool still sees a 55% chance of a hike in October and an almost 75% chance in December.
The market didn’t take hikes off the table. It pushed them back a meeting or two. If you’re positioning off Friday’s move, that distinction is the entire trade.
