US rate hike talk cools on softer jobs data
The recent weaker-than-expected US jobs data has diminished the likelihood of immediate rate hikes by the Federal Reserve, as highlighted in the latest commentary. Per the full note from ing-think, the economy added only 57,000 jobs in June, significantly below the expected 113,000, with a notable decline in the labor force participation rate revealing deeper worker disengagement. This data points to a potential pause in monetary tightening as the Fed weighs sluggish job growth against inflation indicators. The absence of immediate catalysts on the calendar allows the market to digest this data without the pressure of upcoming economic releases.
What the desk is arguing
The latest US jobs report reveals a worrying trend and signals that the Federal Reserve may hold off on further rate hikes. According to ing-think, June’s non-farm payroll growth was a meager 57,000 against a forecast of 113,000, emphasizing the fragility of the labor market ahead of potential Fed actions.
Further underscoring this stance, the unemployment rate fell to 4.2%, but this decline masked a significant disengagement from the labor force with more than 700,000 individuals leaving the workforce altogether. A sharp drop in labor force participation among prime-age workers raises concerns about the overall health of the US economy.
Where it sits in our coverage
Our consensus target range for USD/EUR remains centered around 1.075, with a minimum of 1.04 and a maximum of 1.12. Notably, jpmorgan has set its target for March 2026 at 1.10, placing it in line with our outlook.
The desk's view aligns with the general consensus that monetary policy will likely remain unchanged amid these softer job figures, albeit bofa is positioned lower, forecasting 1.04 for the same tenor. Our target resides at the higher end of the spread, reflecting a cautious but constructive outlook on the USD against the Euro.
How other firms see it
Firms such as jpmorgan and others seem to agree that the Fed will remain on hold, given the labor market's unexpected weakness. Conversely, bofa advocates a more bearish outlook amid these developments, suggesting further downside risks to the dollar.
Traders should keep an eye on USD/EUR as reactions to the Fed's policy decisions unfold, especially with the looming potential for rate adjustments depending on labor market improvements or further deterioration in data.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US job creation fell sharply in June, with only 57,000 jobs added versus expectations of 113,000.
- 02The unemployment rate dipped to 4.2%, but this was misleading due to a significant drop in labor force participation.
- 03The weak jobs data is likely to keep the Federal Reserve on hold regarding rate hikes in the near term.
- 04Our USD/EUR target remains cautious amid mixed signals from the labor market.
Market implications
Traders should monitor the USD/EUR pair closely, especially given the current consensus view that further Fed tightening is less likely in response to recent labor data. Pay attention to the 1.075 level as it serves as a psychological barrier for traders looking to position ahead of potential policy shifts.
Risks to this view
An unexpected surge in job growth or a significant rebound in labor force participation could lead to a rapid reassessment of the Fed's interest rate path, potentially invalidating the current outlook for USD strength. Additionally, a strong inflation report could reinvigorate discussions of tightening, thus impacting market positioning.
Articles US rate hike talk cools on softer jobs data 14:59 United States Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download US job creation slowed after a decent three-month run while the unemployment rate fell, but this was primarily due to worker disengagement with more than 700,000 leaving the labour force. A disappointing outcome that has taken the wind out the sails for calls for imminent rate hikes. A soft July CPI report should boost the case for a prolonged Fed pause James Knightley US job growth was weak in June 57,000 US jobs added in June Lower than expected Weak jobs growth, unemployment rate falls for bad reasons The June US jobs report led with a softer-than-expected non-farm payroll growth number of 57,000 (consensus 113k) with 74,000 downward revisions to the past two months.
The unemployment rate dipped to 4.2% from 4.3%, but this was primarily caused by a big drop in the participation rate to 61.5% from 61.8% – ie not a good reason since it highlights worker disengagement. In fact, the details show the number of people employed falling by half a million, while the number of people unemployed fell 213k, meaning more than 700k left the workforce. Worryingly, the bulk of the pain was seen in prime age workers – those aged 25–54 – where the participation rate fell from 83.9% to 83.3%.
Wage growth was in line at 0.3% month-on-month or 3.5% year-on-year. In terms of non-farm payrolls, the private sector was particularly subdued, rising only 49k, with private education/healthcare services yet again the only source of strength, rising 69k. This sector has cumulatively accounted for 70% of all the jobs created in the United States since December 2022 – a remarkable degree of job concentration.
Leisure and hospitality has been another key sector for job creation in recent years, but not in June. Employment fell 61k, which is a major surprise given the World Cup is on and bars and the venues themselves are busy. Employment in this sector had increased by 44,000 in May, so it may be that business owners had thought there might be even more excitement about what was going on and have been left disappointed.
Cumulative job creation since December 2022 (000s) Source: Macrobond, ING "> Source: Macrobond, ING Inflation is the Fed's focus, but better news is coming here Non-farm payroll growth averaged just 8,571 per month between January 2025 and February 2026, but there was a decent uptick over the March-May period when payrolls increased 164k on average. Today’s number suggests that this was not necessarily the start of a new trend and takes some out of the wind of the sails for the call for imminent rate hikes. However, Federal Reserve Chair Kevin Warsh has made it clear that inflation is the Fed's focus right now, so market reaction is somewhat muted, with cumulative hikes by December now amounting to 31bp versus 37bp just before the data was published.
The 14 July consumer price inflation data should show MoM prices falling due to the steep drop in gasoline prices and that will likely have more of an impact on investor psychology. We continue to favour a prolonged pause from the Federal Reserve rather than expect a 2026 rate hike. US Unemployment Jobs Federal Reserve Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author James Knightley Chief International Economist, US James Knightley is the Chief International Economist in New York. He joined the firm in 1998 in London and has been covering G7 and Western European economies.
He studied economics at Durham… In this article Weak jobs growth, unemployment rate falls for bad reasons Inflation is the Fed's focus, but better news is coming here
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