FED rate hikes and inflation this year are at record highs. The U.S. jobs data released on Friday were truly unexpected by market participants, which had andwill still have consequences.

According to the July report on new jobs and total unemployment, the U.S. economy gained 528,000 jobs against a forecast of 250,000, and more importantly, the June numbers were also revised upward to 398,000. 

The unemployment rate fell to 3.5% from 3.6%, which was also a surprise since it had been expected to remain at 3.6%. Another positive piece of news was the average hourly earnings up 0.5% month-over-month and 5.2% year-over-year. Also, upward revisions were made to this indicator for the previous period under review.

Why did the overall previously positive sentiment in the markets change so drastically? It is connected with the fact that earlier the data showing the slowdown of the number of new jobs in the USA might have become the reason for the Federal Reserve’s decision to pause in raising interest rates in August, and in September to continue the cycle with a noticeably lower growth rate, for example at 0.25% per month. 

Here the main reason for such a scenario was the situation in the labor market. The Fed has an opportunity to continue the sharp FED rate hikes this year, not just to limit the growth of inflation, but to make it go backwards.

Such a change in sentiment could put pressure on demand for stocks of companies, which always have trouble growing if the Central Bank conducts aggressive interest rate hikes. But in this case, the dollar would be supported.

There is also a possibility that the Fed may not change its plans to relieve pressure by raising rates, assessing the current situation in the economy as positive and the inflation rate as the maximum, which may stop and go in the opposite direction in the near foreseeable future, and without continuing aggressive rate increases.