Fed Rate Hike Odds Surge Amid Strong Jobs Data

Market expectations for a Federal Reserve rate hike have surged in recent days, driven by strong employment data. According to CME's FedWatch tool, there is now a 58.4% probability of a 25 basis point increase at the upcoming FOMC meeting on September 16.

The shift follows the release of healthy August jobs numbers, which showed the U.S. economy added 162,000 new positions and kept the unemployment rate steady at 4.1%. However, inflation remains above the Fed's target of 2%, with an all-items index of 3.4% over the past 12 months.

Analysts expect supply-side pressures, including the Middle East conflict and tariffs, to reinforce the case for a hike. Macquarie's David Doyle noted that while the timing is uncertain, the baseline case for the first 25 basis point hike has moved to September from December, with a second hike anticipated in the first quarter of 2027.

Bank of America also expects a hike next week, warning that if August core Personal Consumption Expenditures prints above 0.24% month-over-month, hike odds could exceed 50% going into the September meeting.