Kalshi traders expect the Federal Reserve to leave interest rates unchanged next month.
The September Fed market now prices a hold at 65%, while the probability of a 25-basis-point hike has fallen to 33%.
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The market for the inflation rate in July held steady at 3.3%.
The unemployment report
The latest jobs report may have influenced Kalshi traders' expectations on interest rates.
CNBC reported that even though the unemployment rate was slightly lower for July, the U.S. economy experienced a decline in jobs for the month.
The unemployment rate fell to 4.1%, but the labor force participation rate fell to 61.4%, the lowest rate in more than five years.
“Nonfarm payrolls fell by a seasonally adjusted 23,000 for the month, compared with a downwardly revised 20,000 for June,” CNBC reported. “The Dow Jones consensus forecast had been looking for a gain of 83,000.”
The Federal Reserve usually raises interest rates to slow down any rising inflation. The negative jobs report shows that the economy may still be slowing.
“The July employment report solidified that the labor market is not out of the woods quite yet,” ZipRecruiter labor economist Nicole Bachaud told CNBC.
Wage growth was more encouraging.
“Average hourly earnings increased by just 2 cents, bringing the 12-month average down to 3.2%, below the forecast increase of 3.5% and the lowest since May 2021,” CNBC reported.
The Federal Reserve
The markets may be responding to the recent jobs report, but the Federal Reserve is still debating whether or not it should raise interest rates “in an economy where the labor market had been improving from a moribund year in 2025 while inflation has remained well above the central bank’s 2% target,” CNBC reported.
Last month, the Federal Reserve board voted 9 to 3 to maintain the current target range for the federal funds rate between 3.5% and 3.75%. The three dissenting votes called for a quarter-point increase. Kalshi traders believed at the time that the September rate would increase by a narrow margin.
The weak jobs report suggests to some analysts that interest rates will not change next month, but some are not so sure.
Colby Smith of the New York Times wrote that the Fed could still raise rates in September because “officials at the central bank instead appear much more sensitive to how price pressures are evolving, with heightened focus on next week’s inflation report.”
Surging fuel prices caused by the war with Iran and other transport blockades may have been a major contributing factor in the weak jobs report and stagnant wages.
“The combination suggests that the economy is not on as strong a footing as many have perceived it to be, which helps the case that rate increases from the Fed are not immediately necessary,” Smith wrote. “But for that position to strengthen, the inflation data would need to cooperate.”
The takeaway:
Kalshi markets now predict:
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