Will strong August jobs push the Fed to raise rates?
Payrolls beat forecasts, yields rose, and September hike odds climbed ahead of CPI and the mid-month Fed meeting.
U.S. stocks fell and Treasury yields rose Friday after employers added far more jobs than expected in August, lifting odds the Federal Reserve will raise rates at its meeting ending Sept. 16. For households, that points to stickier borrowing costs while inflation remains above 3% and fuel-linked freight expenses stay high.
The Labor Department said payrolls rose by 162,000 last month, well above the 65,000 gain FactSet had forecast. Revisions added 55,000 jobs to June and July. Unemployment held at 4.1%. Hiring was broad: restaurants and bars added 59,000 jobs, construction 22,000, and manufacturers 16,000. Average hourly wages rose 3.1% from a year earlier, the weakest year-over-year gain since May 2021 — a hard number for families matching paychecks against grocery and delivery bills.
Wall Street treated the report as more room to tighten. CME FedWatch showed odds of a September rate hike at 60.4% Friday, up from 49.4% Thursday and 57% a week earlier. Consumer prices are next: August CPI is due Sept. 11, just before the Fed meeting ends Sept. 16. Economists expect a 3.4% annual rate, matching July. Inflation has held stubbornly above 3% for most of the year, far from the Fed's 2% goal, with oil elevated amid the U.S. conflict with Iran. U.S. diesel averaged a record $5.85 a gallon Friday, a direct cost channel into freight and restocking. In Friday tape, West Texas Intermediate crude traded near $91.22 and the 10-year Treasury yield near 4.78%.
Major indexes finished lower. The S&P 500 dropped 0.4%, the Dow 0.5%, and the Nasdaq 0.3%, though the S&P still posted a modest gain for the week. Freddie Mac's survey as of Sept. 3 put the 30-year fixed mortgage average at 6.71% and the 15-year at 6.04% — levels that matter immediately for buyers and refinancers if policy rates move higher again.
Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group, said the jobs report “does lean toward the Fed increasing rates,” while stressing a hike is “not a foregone conclusion.” Jeffrey Roach, chief economist at LPL Financial, said a Sept. 16 increase “appears increasingly likely,” and that a hike might bring less volatility than standing pat. Jim Baird of Plante Moran Financial Advisors framed the question around the coming CPI print: whether stronger hiring and a stiff inflation tail wind push officials to the tipping point later this month. Fed Chair Kevin Warsh said last week at Jackson Hole that inflation had not shown sufficient improvement and that the central bank might have more work to do.
Jobs are still being added, wage gains have cooled, and mortgage averages near 6.7% already price a restrictive backdrop. Markets next weigh the Sept. 11 inflation report against the Fed's Sept. 16 decision window.
Market impact: Homebuyers, mortgage shoppers, and rate-sensitive stocks face the clearest near-term pressure if September hike odds stay elevated through the Sept. 11 CPI and Sept. 16 Fed meeting.
This is general economic reporting and analysis for public information, not investment advice.