A hot jobs report pushed September Fed hike odds from about 50% back to 60% after Waller had pulled them down from roughly 66%, and the next inflation print is now the decisive test before the Sept. 16 meeting. The labor market is being framed as historically fine: unemployment is 4.1%, initial claims are 206,000, non-total nonfarm payroll YoY is back up to 603,000 from a 116,000 trough in Dec. 2025, and the weakness is described as regional rather than nationwide. The bigger macro claim is that stubborn inflation, $90 oil, tariffs, Middle East geopolitics, and AI-driven capex are keeping the Fed from cutting, while the long end of the Treasury curve keeps grinding higher and may force at least one hike. A Bank of Japan hike in September, possibly another in December, is also flagged as likely, with Japan’s policy rate at 1% and the 2-year yield at 1.74%.
The latest jobs report pushed September Fed hike odds from about 50% back to 60%, after Waller’s comments had dragged them down from around 66%.
With only about 2 weeks left before the Sept. 16 Fed meeting, a 50/50 hike setup is described as unusual; near meetings the market usually leans 80% to 90% toward one outcome.
If the Fed does not hike, the long end of the yield curve is expected to keep moving higher; the 30-year yield has already moved above its prior high near 5.17%, the 20-year is close, and the 10-year is expected to keep climbing from 4.78% after touching 4.8% earlier in the day.
The current administration is said to have no interest in a Fed rate hike, but the most sensible way to fight the long end of the curve is still a higher policy rate.
Unemployment is still 4.1%, initial claims are 206,000, and claims would have to move above 300,000 before recession concern rises materially.
Since November 2025, unemployment has been trending down, while non-total nonfarm payroll YoY bottomed at 116,000 in Dec. 2025 and has rebounded to 603,000, a setup presented as labor-market resilience.
Last month’s negative nonfarm payroll print was revised back to positive, reinforcing the point that markets often overreact to the first release while revisions later change the picture.
Average hourly earnings are still falling on a YoY basis, but the market is reading wage progress as too slow for the Fed’s comfort.
The next inflation report, due before the Sept. 16 Fed meeting, is the key print: a hot CPI would make a hike much more likely, while a cooler print would support holding and maybe hiking later in the year.
$90 oil is expected to pressure CPI, and recent inflation prints may already have priced in the earlier June/July oil drop.
AI is framed as short-term inflationary because it is driving demand and heavy capex into data centers, chips, and power, but long-term disinflationary because it should reduce labor demand and wage pressure.
The conflict in the Middle East and tariffs are adding inflationary pressure, which is why cuts are not expected anytime soon.
The labor market weakness is described as regional, not national: as of May 2026, only 19 states had rising unemployment versus 6 months earlier, while the pandemic, Oct. 2008, and 2001 showed nationwide deterioration.
Unemployment by age shows the strain is concentrated on younger workers: 16-19-year-olds are at 14.1%, up from 12.1% last month; 20-24-year-olds are at 7.1%, down from 9.2% in Aug. 2025; 25-54-year-olds are at 3.6%.
Job openings per unemployed worker have been trending up since Nov. or Dec. 2025, and the quits rate has been basically flat around 24 rather than breaking down like in prior recessions.
The Fed is described as more fragmented than under Powell, with three dissents at the last meeting and three officials wanting to hike; the call is for at least one hike to signal the Fed will not back down after about 5 years above 2% inflation.