September Rate Hike Odds Soar, But Real Yields Stay Anchored

The likelihood of a Federal Reserve rate hike in September increased significantly after Fed Chair Kevin Warsh's speech at the Jackson Hole Economic Policy Symposium on August 28. The CME FedWatch-implied probability of a September hike jumped from about 35% to 57% in hours.

However, despite this increase in rate hike odds, real yields barely moved. The 10-year Treasury Inflation-Protected Security (TIPS) yield remained essentially unchanged at around 2.34%, as of August 27.

This week's jobs data will play a crucial role in determining the outcome of the September meeting. Four major data prints are scheduled to release: JOLTS job openings and ISM manufacturing on Tuesday, September 1; ADP employment report on Wednesday, September 2; and the August jobs report on Friday, September 4.

Economists expect a modest increase in payrolls, with a consensus of +55,000 jobs added in August. However, some bank forecasts are more optimistic, with Credit Agricole and Goldman Sachs predicting around +65,000 jobs, while Wells Fargo expects +80,000.