A hotter-than-expected August jobs report repriced the Federal Reserve's next move, with market odds of a September rate hike climbing to 58 percent and yields rising enough to drag the Nasdaq 100 into the red. The September FOMC decision now hinges on next week's inflation report.
The Nasdaq 100 flipped lower after August payrolls added 162,000 jobs, lifting Federal Reserve rate-hike odds to 58 percent and pushing Treasury yields higher.
"Next week's inflation report is likely to be the key driver of the Federal Reserve's decision regarding whether to hike at their September meeting," Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, said.
The unemployment rate held at 4.1 percent with 7.0 million people out of work, even as labor force participation climbed two-tenths of a percentage point. July's payrolls were revised up by 44,000 jobs to a gain of 21,000 from an initial loss of 23,000, leaving the prior two months revised higher by a combined 55,000 positions. Wage growth eased to 3.1 percent, running below the pace of inflation, which Fratantoni said would weigh on consumer spending if it persists.
The hot print revives the rate-hike trade that Thursday's relief rally had unwound, with the Fed's September meeting now two weeks away. "A strong inflation reading for August could close the case for an increase," Sam Williamson, senior economist at First American, said. "For housing, stronger job growth supports demand, but mortgage rates will determine how much of that demand makes it across the finish line."
Job gains were concentrated in a few sectors. Food services added 59,000 positions and local government education 42,000, while the information industry shed 23,000 jobs. Construction added 22,000 roles, split between 7,300 in residential building and 3,400 among residential specialty trade contractors. The real estate sector lost 3,200 jobs and rental and leasing services 300.
The rise in yields that followed the report pressured growth and technology names, breaking the prior session's rate-relief advance. With hike odds now at 58 percent, positioning into the September FOMC hinges on next week's consumer price data, which economists said would settle whether the Fed moves. The 30-year fixed mortgage rate stood at 6.99 percent, down six basis points, according to HousingWire data, as the housing market watches how far the repricing travels.
This article is for informational purposes only and does not constitute investment advice.
