US Jobs Beat Pushes September Rate-Hike Odds Past 50 Percent as Markets Erase Gains

The United States added 162,000 jobs in August, decisively beating consensus estimates of 55,000, according to the Labor Department's report released September 4. The unemployment rate held steady at 4.1 percent. The stronger-than-anticipated payroll data drove stocks lower and short-dated Treasury bonds down as traders boosted their bets that the Federal Reserve will raise interest rates at its September 15-16 meeting. Money markets priced in over 50 percent chance of a hike in September, up from roughly 50 percent prior to the report. The S&P 500 halted a back-to-back advance that had sent it near all-time highs. Treasury two-year yields, which are more sensitive to imminent Fed policy, rose four basis points to 4.37 percent. The stronger labor data reduces the probability that Fed Governor Christopher Waller's dovish comments on September 3 — saying he would favor holding rates steady if inflation data continues to improve — will carry the day when the Federal Open Market Committee meets in mid-September. Fed Chairman Kevin Warsh left rates unchanged at 3.50-3.75 percent at the July meeting, but three FOMC members dissented in favor of a 25-basis-point hike, leaving the door open for September action. This matters because markets had repriced rate expectations lower after Waller's comments, driving a rally in equities and Bitcoin. The jobs beat reverses that sentiment and increases uncertainty into the September FOMC decision, which comes just weeks before the November midterm elections. Oil prices also pulled back, with WTI crude falling 0.82 percent to 90.55 per barrel and Brent slipping 0.50 percent to 95.04 per barrel, down from recent highs driven by US-Iran hostilities.