Fed likely to pause after weak payrolls

Fed policy makers meeting on Tuesday August 8 will probably to decide to refrain from raising interest rates after nonfarm payroll data came in weaker than expected.

The US Labour Department announced that nonfarm payrolls increased by 113,000 following a revised 124,000 gain in June. The unemployment rate rose to 4.8% from 4.6%. The annual increase in hourly earnings slowed.

Most predictions were for nonfarm payrolls to grow by 144.000 with only BNP Paribas correctly predicting 115k increase ahead of the figures.Bonds jumped and the dollar fell as traders judged the Fed will take a breather after pushing borrowing costs higher at each policy meeting since June 2004. The economy is losing momentum, consumers are reining in spending and wage growth is slowing.

The yield on the benchmark 10-year U.S. Treasury note fell 8 basis points to 4.88%. The probability of the central bank increasing its target for the main U.S. rate to 5.5% dropped to 21% from 41%, based on the price of futures tied to the rate on the Chicago Board of Trade.

The workweek in July held at 33.9 hours, as economists expected. Average hourly earnings in July rose 0.4% for a second month. Economists expected a 0.3% gain.