US Markets Reprice Odds of September Rate Hike After Warsh's Hawkish Pivot
Recent US inflation data left the broader macro backdrop largely unchanged, but a hawkish Jackson Hole speech from Fed Chair Kevin Warsh has prompted markets to reprice the likelihood of a September rate rise.
The probability of a September rate hike has surged past 50%, with nearly one and a half cumulative hikes priced in by year end. The yield curve has flattened and the US dollar strengthened as a result.
Markets are now bracing for a busier US data slate, starting with JOLTS on Tuesday and ISM Manufacturing/Services on Wednesday/Thursday, both expected to remain in expansionary territory.
The centrepiece is Friday's nonfarm payrolls report, where consensus looks for a rebound to 58,000 after last month's -23,000 reading. A weak print could unwind some of the post-Jackson Hole hawkish repricing across rates and FX, whereas a firmer outcome would reinforce expectations that inflation remains the dominant focus.