#StrongNonfarmPayrollsRekindleRateHikeFear

US Labor Data Slows Sharply, Market Focus Shifts from July Rate Hike Threat to September Meeting

Jakarta, July 3, 2026. Global financial markets entered the weekend with a vastly different sentiment than just a few days earlier, following the US employment report for June showing a sharp weakening beyond many economists' expectations. Yet throughout this week, market participants' attention had been fully focused on the possibility of the Federal Reserve accelerating interest rate hikes, following a streak of strong employment data in previous months.

Job Creation Far Below Expectations

The US Bureau of Labor Statistics, commonly abbreviated as BLS, reported that the US economy added only fifty-seven thousand nonfarm payroll jobs throughout June 2026. This figure fell far short of the market consensus estimate in the range of one hundred ten to one hundred fourteen thousand jobs, and marked the lowest job growth in four months.

What makes this report even more concerning is the downward revision to the data for the previous two months. April's job gains, initially reported at one hundred seventy-nine thousand, were trimmed to just one hundred forty-eight thousand. Meanwhile, May's data, which had previously sparked rate hike concerns after coming in at one hundred seventy-two thousand, was revised down to just one hundred twenty-nine thousand. With these revisions, total job creation in April and May was actually seventy-four thousand lower than previously reported.

The unemployment rate actually edged down slightly to 4.2 percent, after holding at 4.3 percent for three consecutive months. However, this decline is not a good sign, as it was driven by a shrinking labor force participation rate, which fell to 61.5 percent from 61.8 percent the previous month, meaning more people are dropping out of active job search.

On the wage side, average hourly earnings for all private nonfarm workers rose thirteen cents to thirty-seven dollars and sixty-four cents, equivalent to a monthly increase of 0.3 percent. On an annual basis, wage growth stood at 3.5 percent, slightly up from 3.4 percent the previous month.

Private Sector Data Also Weakens

A day before the official BLS data release, private payroll firm ADP reported that the US private sector added only ninety-eight thousand jobs in June, below the market expectation of one hundred thirteen thousand, and also slowing from the gain of one hundred twenty-two thousand in May. The combination of both ADP and NFP data, both weak, further strengthened the signal that the US labor market is beginning to cool after a period of prolonged resilience.

New Fed Leadership Remains Watchful on Inflation

It is worth noting that this report comes shortly after the Federal Reserve held a key meeting on June 17, 2026, which was the inaugural meeting for Kevin Warsh as the new Fed Chair, replacing Jerome Powell. At that meeting, all twelve voting members unanimously agreed to keep the benchmark interest rate in the range of 3.50 to 3.75 percent, the same level since the last cut in December 2025.

Although rates were held, the policy tone delivered was actually hawkish. Among the eighteen members who provided projections in the Summary of Economic Projections, nine of them expected a rate hike before the end of 2026, with six members projecting two rate hikes. The median projection also raised the year-end PCE inflation estimate to 3.6 percent, a significant jump from the March projection of only 2.7 percent, while the economic growth projection was trimmed to 2.2 percent from the previous 2.4 percent.

Warsh himself chose not to submit his personal projection in the dot plot, consistent with his long-held criticism of the format. He also drastically shortened the length of the official Fed statement, and announced the formation of five working groups to review various aspects of central bank operations, from communications, balance sheet policy, to the inflation framework.

Market Expectations Reverse Course After June Data

Before the June NFP report was released, the CME FedWatch tool had recorded a probability of a rate hike in July at around 34 percent, surging sharply from just 6 percent at the start of June, while the likelihood of at least two rate hikes in 2026 had reached above 40 percent. The probability of a rate hike in September had even been priced by the market in the range of 63 to 67 percent.

However, as soon as the weak June data was published, the direction of expectations quickly reversed. The probability of a rate hike at the September meeting immediately eroded to around 51 percent, down from the 63 to 67 percent range before the data release. The focus of market participants is now practically entirely shifted to the September meeting, with the assumption that the Fed will almost certainly hold rates steady at the upcoming July meeting.

Dollar Weakens, Gold Surges Sharply

Financial market reactions to the weak data were swift and uniform. The US dollar index weakened by about 0.7 percent immediately after the data release, while global gold prices surged more than two percent, breaking through the four thousand one hundred dollars per troy ounce level, the highest in the past week. Gold's strength was also supported by Fed Chair Kevin Warsh's acknowledgment that inflation risks are beginning to subside, although he reaffirmed the commitment to bring inflation back to the two percent target.

In the bond market, Treasury yields, which had risen sharply in previous weeks due to rate hike expectations, reversed lower after the June data was published, as markets trimmed short-term monetary tightening bets.

Geopolitical Shadows Still Weigh on Inflation

Behind all the dynamics of this employment data, geopolitical factors remain a major threat to the US inflation outlook. The conflict involving Iran had previously pushed global crude oil prices sharply higher to above one hundred dollars per barrel at its peak, before subsiding to the range of sixty-seven dollars per barrel after the US and Iran signed a temporary memorandum of understanding regarding the smooth passage through the Strait of Hormuz. Follow-up talks between the two countries are still ongoing in Doha, and the outcome could influence the direction of energy prices and global inflation in the coming months.

Outlook Ahead of Next FOMC Meeting

With the next Federal Open Market Committee meeting scheduled for July 28-29, 2026, market participants will continue to monitor a series of additional data before that meeting, including PCE inflation reports, weekly jobless claims, and developments in geopolitical negotiations in the Middle East. The interim consensus is that the likelihood of a rate hike in July is already very small, but the September meeting remains open to all possibilities, depending on how employment and inflation data move over the next two months.

Conclusion
The June 2026 Nonfarm Payrolls report is a reminder of how quickly market expectations can reverse course in just a matter of days. After being overshadowed by concerns of a rate hike due to strong May data, the market now has to adjust to a more tangible signal of labor market cooling. Amid the new leadership of Kevin Warsh, who emphasizes a data-driven approach and more concise communication, the direction of Fed interest rate policy in the second half of 2026 now fully depends on the stream of economic data that will continue to flow in the coming weeks.

This article was compiled based on official data from the US Bureau of Labor Statistics, Federal Reserve press releases, and current financial market news as of July 3, 2026.