Fed probably won't raise rates until 2015 as US jobs market disappoints

The US jobless market has come in weak, with only 162,000 new jobs in July (seasonally adjusted of course). Analysts had expected a number of 185,000, from 188,000 last month (revised down from 195,000).

Reuters now report that the reaction by traders of short-term US interest-rate futures suggests that they think the Federal Reserve will wait until 2015 before raising rates.

Futures prices suggested traders see a 65 percent chance of a rate hike in January 2015, with probabilities increasing through the first half of 2015, according to CME Group's Fed Watch, which generates probabilities based on the price of Fed funds futures traded at the Chicago Board of Trade.

Before the report, traders had put the chance of a January 2015 rate hike at 59 percent.

Throughout the day, we'd been seeing higher guesses, with numbers exceeding 200,000 suggested by some banks.

Only 4 out of the 93 economists polled by Bloomberg suggested a number of 162,000 or lower. Instead we got the lowest print since January.

Unemployment falls from 7.6 per cent to 7.4 per cent, ahead of estimates of a drop to 7.5 per cent. The participation rate has fallen to 63.4 per cent from 63.5 per cent.

Ishaq Siddiqi, market strategist, ETX Capital:

July’s report is a mixed bag which provide us little fresh clues about the Fed’s next possible action on stimulus measures. There’s a big bright sport in the report; the number of unemployed people in the US is down 1.2million so far in 2013, a respectable improvement in labour market conditions. That said, Fed will refrain from tapering this year as we need to see clear signs of sustainable improvement and stronger momentum in the jobs market before tapering can really start.

Robert Wood, Berenberg:

Importantly, while jobs growth was a little softer, the unemployment rate fell to 7.4% from 7.6%. The economy no longer needs the intensive care of $85bn of asset purchases every month, so we expect the Fed to begin tapering in October.

Paul Ashworth, chief US economist, Capital Economics:

While July itself was a bit disappointing, the Fed will be looking at the cumulative improvement since it restarted its asset purchases last September. On that score, the unemployment rate has fallen from 8.1% last August, to 7.4% this July, which is a significant improvement.

Kit Juckes, Societe Generale:

Employment growth trundles on at a pace which puts a floor under growth but doesn't meet today's bulled-up expectations. With the unemployment downtrend continuing, I doubt it changes the taper timetable at all.