Jobs report to settle Fed's September rate call, odds near 50%

The Federal Reserve's September rate call rests on August US employment data due Friday, with futures pricing a roughly 50 percent chance the central bank lifts its benchmark rate from 3.50%-3.75%. Treasury and European government bond yields were little changed in early trading as investors held positions ahead of the release at 1230 GMT.

"September's meeting is going to be knife edge and it's going to come down to how the CPI data prints," Joseph Purtell, portfolio manager at Neuberger, said, referring to the consumer price index due Sept. 11 that will follow the jobs report.

The employment figures land after a stretch of soft hiring that has left the labor market looking vulnerable even as inflation runs well above target. Total payroll growth averaged 44,300 jobs a month over the six months through July, yet the economy shed about 23,000 jobs in July and added just 20,000 in June, according to the Federal Reserve Bank of San Francisco. The unemployment rate held at 4.1 percent in July, while headline personal consumption expenditures inflation stayed at 3.7 percent on a 12-month basis — above the Fed's 2 percent goal for 65 straight months.

The stakes are unusually high because the policy committee is split. Fed Chair Kevin Warsh said last week at the Jackson Hole symposium that inflation had not shown sufficient improvement and the central bank might have "more work to do," a sign he is weighing a hike at the Sept. 15-16 meeting. Governor Christopher Waller struck a more conditional tone Thursday, saying he would be "inclined" to hold if inflation cools but would "consider a rate hike" if the data come in hot. New York Fed President John Williams said he wants more evidence that price pressures are easing before backing further action.

Rate odds swung on Fed comments

Investors had pushed the probability of a September hike to nearly 65 percent by Wednesday, according to CME Fedwatch, only to see it fall to roughly 50-50 after Waller's remarks. The shift rippled through markets: stock prices rose and bond yields fell in response, unwinding part of a week-long climb in longer-term yields that had lifted mortgage and auto loan rates for consumers.

The last time the Fed moved its benchmark was December 2025, when it cut to the current 3.50%-3.75% range after a series of reductions. Since then, inflation has re-accelerated on higher energy and goods prices, and futures now imply the policy rate climbing to 4.00%-4.25% by mid-2027 — the equivalent of two or three quarter-point hikes — a sharp reversal from the easing path markets priced at the start of the year.

A strong August payrolls print would reinforce the case for tightening and likely push yields higher, while a weak reading could let the committee hold and buy time for the Sept. 11 inflation report to confirm the recent cooling. The White House has pressed the other way: Vice President JD Vance reiterated Thursday that the administration believes the Fed should be lowering rates, not raising them, citing the CPI data.

This article is for informational purposes only and does not constitute investment advice.