September Rate Hike Odds Skyrocket to 66%

The Federal Reserve is set to announce its next interest-rate decision at its September 15-16 meeting, with markets increasingly focused on the possibility of a rate hike. According to market pricing, the chance of a September rate hike rose from about 33% to 66%, after Fed chair Kevin Warsh's speech at Jackson Hole. This increase in probability is due in part to the strong US labor market, with 4.1% unemployment and near-record-low jobless claims.

Jobs data will play a crucial role in determining the Fed's next move, with several key reports coming out this week. The JOLTS report will show whether companies are still hiring or starting to pull back, while the ADP report will provide an early reading on private payroll growth. The nonfarm payrolls and unemployment figures are released on Friday, which could support or make harder the case for a September rate hike.

Economist Steve Hanke expects a higher chance of a September rate increase than the broader market, seeing it at approximately 80%. However, Tom Lee, co-founder of Fundstrat, has changed his view and now believes concerns about the Fed could help drive a rally. If the Fed leaves rates unchanged, Lee thinks the S&P 500 could surprise to the upside.