Will the Fed lower interest rates, despite a better-than-expected jobs report? Traders say yes

A better-than-expected June jobs report sent stocks falling Friday morning as it poured cold water over the chance of a rate cut by the Federal Reserve at the end of the month.

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Viewed as critical to the U.S. central bank’s decision-making process during its two-day meeting in July, the jobs report, published by the Bureau of Labor Statistics, boasted 224,000 jobs created last month, far above the 160,000 predicted by analysts, eased fears about the possibility of an economic slowdown.

Signs of softening global growth, however, could’ve provided Fed policymakers the exact momentum needed to lower the benchmark federal funds rate. At the latest meeting in mid-June, the Fed heavily hinted at the possibility of a rate cut this month if the outlook remained cloudy, though noted it ultimately depended on uncertainties surrounding the U.S.China trade war, as well as persistent muted inflation.

"The Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective," the FOMC statement said.

Still, traders continued to clamor for a rate cut, pricing in a 100 percent chance of a rate cut at the upcoming meeting. More than 96 percent of traders, as of Friday afternoon, were estimating a marginal reduction in the interest rate -- shifting to a range between 2.00 percent to 2.25 percent from the current range between 2.25 percent to 2.50 percent.

“Investors hoping for added ammunition to support their expectations of multiple rate cuts this year—or even a 50-basis point cut later this month—will be disappointed,” said Curt Long, the chief economist at the National Association of Federally-Insured Credit Unions. “A 25-basis point insurance cut is still on the table in July, but beyond that NAFCU sees no reason to expect further easing this year.”

Tony Bedikian, managing director at Citizens Bank, noted that whether or not the Fed cuts rates is dependent on whether other geopolitical uncertainties -- such as the year-long U.S.-China trade war -- see any resolutions.

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Last week, President Trump met with Chinese President Xi Jinping at the G20 summit in Osaka, Japan, during which both nations agreed to a tariff ceasefire, while also promising to continue trade negotiations.

"We'll have to see whether the equity markets can shrug that off when balanced against other macroeconomic factors, such as the hope of a China trade truce," Bedikian said.