A stronger jobs report keeps a September hike in focus, but futures and prediction markets give different odds.
August's jobs report gave the Federal Reserve an upside surprise. Nonfarm payrolls rose 162,000 last month, exceeding a consensus estimate in the mid-50,000s, while the unemployment rate held steady at 4.1%, the Bureau of Labor Statistics reported. Revisions added to the strength: June's payroll gain was revised up by 20,000 and July's by 25,000.
The report follows Fed Chair Kevin Warsh’s hawkish remarks at last month’s Jackson Hole symposium, which have helped bring the possibility of renewed tightening into focus.
Traders have pushed up the odds of a rate hike at the Fed's to meeting, though how much depends on which gauge is doing the counting. CME's FedWatch tool put the implied probability at 60.4% as of Tuesday, up sharply from roughly 44% a month earlier, but down from a high near 67% just last week, a reminder that the move hasn't been a straight line. Real-money prediction markets tell a related but not identical story: a Kalshi contract tied to the same decision showed the odds at 53% this week, while Polymarket's contracts have shown readings as high as the low 70s. The readings are not directly interchangeable. Each measure has a different structure: CME's figure is a probability implied by fed funds futures pricing, while Kalshi and Polymarket are traded contracts with their own resolution rules and liquidity.
Inflation remains the key test
August’s consumer price index, due Friday, is the next major input before the Fed meeting. The jobs report strengthens the case for economic resilience, but inflation will help determine how much room policymakers see for holding rates steady.
This week’s oil-price spike and Canadian retaliatory tariffs create separate risks for future costs. Because they emerged in September, they will not be reflected in the August CPI report. Their transmission into later inflation readings remains uncertain.
Credit markets are not signaling stress. U.S. high-yield spreads have held near 2.65% for three straight weeks, suggesting whatever adjustment is coming is being priced through rates rather than through fear of a broader credit event.
The market message remains imprecise: expectations for a September hike have risen over the past month, but the latest weekly move in FedWatch was lower. Friday’s inflation release could shift the balance again.