Soft Jobs Data Complicates Interest Rate Decisions For Fed
WASHINGTON, DC – JUNE 17: Federal Reserve Chair Kevin Warsh speaks to reporters during his first news conference since taking the helm at the central bank on June 17, 2026 in Washington, DC. Warsh was appointed by President Donald Trump after former chair Jerome Powell’s tenure ended in May. (Photo by Chip Somodevilla/Getty Images)
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The U.S. economy lost 23,000 jobs in July according to the Bureau of Labor Statistics. That further complicates interest rate decisions for the Federal Open Market Committee, as markets still see one or two interest rate increases as probable over the remainder of the year.
Weak July Jobs Report
For July, the economy lost 23,000 jobs after previously showing four consecutive months of job gains. Jobs in healthcare and social assistance were the engine of job creation for the U.S. economy in recent months, but in July that slowed and other sectors such as leisure, finance, retail and government lost jobs.
If sustained, this might return the U.S. economy to the more volatile jobs situation from late 2025 and early 2026 where the jobs picture alternated between months of job creation and job losses.
If so, that would make the FOMC’s role more challenging, because maintaining full employment is a key part of their mandate. It’s typically more of a trade-off to raise rates to fight inflation, when doing so puts the job market in greater jeopardy.
Rate Increases Still Expected
Despite this jobs data, interest rates are still expected to rise according to fixed-income futures as tracked by the CME FedWatch Tool. The FOMC’s September meeting now sees a 4 in 10 chance of hike. That’s down from prior to the publication of the jobs data. With further meetings in October and December, markets see a range of scenarios from holding rates steady to three hikes, with one or two hikes most probable.
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Of course, there is more economic data to come before the FOMC meets. If inflation remains elevated and the jobs market returns to growth, then that may support a path for the FOMC to increase rates. That said, with a move away from forward guidance the FOMC no longer directly signals likely near-term interest rate moves.
Renewed Attempts To Fire Fed Governor
The Trump administration may, once again, be attempting to fire a Federal Reserve Governor. The first attempt was blocked by the Supreme Court. However, now, the Trump administration may be taking a slightly different approach in attempting to fire Lisa Cook for cause as reported by the Associated Press.
This is likely to lead to further legal challenges, but could weaken the independence of the FOMC. If Cook were removed, Trump may appoint a Governor directly focused on his desire for interest rate cuts as was the case with Stephen Miran’s brief term as a Fed Governor.
What To Look For
In his first weeks as Fed Chair, Warsh has repeatedly emphasized the need to bring inflation lower. However, for now, the FOMC has not taken action. That said, three members of the twelve-person FOMC dissented on July 29 calling for higher rates.
Prior to the soft job numbers, rate increases later in 2026 were seen as more likely than not. That’s still broadly the case. Although if the jobs market were to weaken further that would complicate the FOMC’s path to raise rates to fight inflation.