Surprisingly healthy employment data has tipped expectations for a rate hike at the Federal Open Market Committee’s (FOMC) meeting higher this week, with interest rate traders now placing the likelihood at 58.4%.
According to CME’s FedWatch, nearly 60% of investors are betting on a 25bps hike to 3.75% to 4%, with the remainder of bettors suggesting the Kevin Warsh-led central bank will instead announce a hold.
The renewed call for a hike comes courtesy of a Bureau of Labor Statistics (BLS) report Friday, which showed that the U.S. economy added 162,000 jobs in August with the unemployment rate unchanged at 4.1%.
Meanwhile, inflation data, the other side of the Fed’s two-pronged mandate, isn’t behaving as helpfully. The BLS’s latest report, released in mid-August, showed the all-items index for the past 12 months sat at 3.4%—well ahead of the FOMC’s 2% target. The next Consumer Price Index report is due to be released on Friday, but with supply-side shocks like the Middle East conflict and tariffs still rumbling on, analysts expect the data to further prove the need for a hike at the next FOMC meeting, which will conclude Sept. 16.
Macquarie’s David Doyle wrote in a Friday note: “While the timing remains uncertain, we move our baseline case for the first 25 bps hike to September [previously December]. We continue to anticipate a second 25 bps hike in 1Q27.”
