Friday’s August employment report could break a high-stakes deadheat for the Federal Reserve.
CME FedWatch futures price a 50-50 split between a pause at 3.50%–3.75% and a 25-basis-point hike at the Sept. 16 FOMC meeting.
Rate-hike odds surged past 63% following Chair Kevin Warsh’s Jackson Hole address before cooling after Governor Christopher Waller signaled support for a hold, leaving Friday’s jobs data as the key tipping point.
What Economists Expect
The economist consensus tracked by Benzinga Pro estimates a rebound in the pace of monthly job growth, from a loss of 23,000 jobs in July to a gain of about 56,000 in August.
The unemployment rate is seen holding at 4.1%. Average hourly earnings are projected to rise 0.3% on the month, which would drag the annual rate down to 3.0%, the softest wage growth since May 2021.
What the consensus hides is how little agreement sits behind it. The published forecasts span 85,000 jobs from bottom to top.
Experts See a Rebound, But Not a Hot Labor Market
- Oxford Economics lead U.S. economist Nancy Vanden Houten expects August payrolls to expand by 95,000, well above consensus. Rather than a renewed hiring boom, she sees the rebound as a correction to July’s weak readings in state and local government, healthcare, retail, and hospitality. That pace would keep the three-month average aligned with stable labor conditions.
- Pantheon Macroeconomics senior U.S. economist Oliver Allen holds an even higher forecast, projecting nonfarm payrolls to grow by 125,000—led by 75,000 private-sector gains and a boost from government education jobs. Allen notes the rebound would offset weakness from prior months, though Pantheon’s broader view remains that employment growth peaked in the spring before slowing.
- Fifth Third Commercial Bank took the bearish view, projecting a drop of 25,000 jobs.
- Bank of America economists sit at the opposite end of the forecast range. The firm expects just 40,000 payroll gains, including 35,000 private-sector jobs. They also expect unemployment to remain at 4.1%, although participation could push it to 4.2%. But their most important conclusion is not the payroll forecast. “Payrolls are unlikely to be the deciding factor for a September hike.” Bank of America counted 61 inflation-related references in Warsh’s Jackson Hole speech against 30 labor-market references.
How It Could Affect Markets
Stronger-than-expected jobs data would boost rate-hike bets, freeing the Fed to focus purely on above-target inflation—a key takeaway from Kevin Warsh’s Jackson Hole speech.
A nonfarm payrolls beat would lift hike odds, while a decisive trifecta—stronger payrolls, lower unemployment, and hotter wages—would make a September rate hike look like a done deal.
Conversely, a second straight month of job losses would bolster the case for a hold, pending Sept. 11 inflation data. A minor miss, however, won’t change much.
One wrinkle for equity traders: market reactions have inverted. 22V Research notes a higher payroll print is now viewed as risk-off, as strong labor data gives the Fed leeway to keep tightening. Just 33% of surveyed investors expect a risk-on rally.
The rate-sensitive complex is where that shows up first. The SPDR S&P 500 ETF Trust (NYSE:SPY) and the Invesco QQQ Trust (NASDAQ:QQQ) both rallied Thursday alongside the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) as hike odds slipped, while the dollar fell against every G10 currency.