Fed rate-hike odds fall sharply after weak July jobs report

U.S. stock indexes have set multiple record highs in 2026, but the outlook for the economy remains clouded by a weak jobs market and persistent inflation. The Federal Reserve's July policy meeting produced three dissents in favor of a quarter-point rate hike, the first time in a decade that three dissents have pushed in the same direction.

The odds of a September rate hike have dropped sharply since then. CME Group's FedWatch Tool showed a 67% chance of a 25-basis-point hike as of July 31, falling to 44.4% by August 7. On the prediction market Polymarket, the odds fell from roughly 60% to 40% over the same period.

The shift followed the July jobs report, which showed nonfarm payrolls fell by 23,000 rather than growing by the 85,000 jobs economists had expected — the third-largest monthly decline since the pandemic. Wage growth over the trailing 12 months came in at 3.2%, below June's 12-month inflation rate of 3.5%, meaning pay has not kept pace with rising prices.

The weak jobs data complicates the Fed's September decision, since a rate hike would further slow an already soft labor market. Core inflation measures that exclude food and energy have remained sticky, a sign that price pressures are spreading beyond the energy sector.

Read the full story at indexbox.io.