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Friday's August employment report could break a high-stakes deadheat for the Federal Reserve. CME FedWatch futures price a 50-50 split between a pause at 3.50%–3.75% and a 25-basis-point hike at the Sept. 16 FOMC meeting.
Rate-hike odds surged past 63% following Chair Kevin Warsh's Jackson Hole address before cooling after Governor Christopher Waller signaled support for a hold, leaving Friday's jobs data as the key tipping point.
The economist consensus tracked by market data estimates a rebound in the pace of monthly job growth, from a loss of 23,000 jobs in July to a gain of about 56,000 in August. The unemployment rate is seen holding at 4.1%. Average hourly earnings are projected to rise 0.3% on the month, which would drag the annual rate down to 3.0%, the softest wage growth since May 2021.
What the consensus hides is how little agreement sits behind it. The published forecasts span 85,000 jobs from bottom to top.
Stronger-than-expected jobs data would boost rate-hike bets, freeing the Fed to focus purely on above-target inflation—a key takeaway from Kevin Warsh's Jackson Hole speech.
A nonfarm payrolls beat would lift hike odds, while a decisive trifecta—stronger payrolls, lower unemployment, and hotter wages—would make a September rate hike look like a done deal.
Conversely, a second straight month of job losses would bolster the case for a hold, pending Sept. 11 inflation data. A minor miss, however, won't change much.
One wrinkle for equity traders: market reactions have inverted. 22V Research notes a higher payroll print is now viewed as risk-off, as strong labor data gives the Fed leeway to keep tightening. Just 33% of surveyed investors expect a risk-on rally.
The rate-sensitive complex is where that shows up first. The SPDR S&P 500 ETF Trust SPY and the Invesco QQQ Trust QQQ both rallied Thursday alongside the iShares 20+ Year Treasury Bond ETF TLT as hike odds slipped, while the dollar fell against every G10 currency.
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