August Jobs Surprise Raises Odds of September Fed Rate Increase

Markets pushed yields higher and pared stocks as next week’s PPI and CPI readings will likely decide whether the Fed tightens policy.

Overview

The U.S. economy added 162,000 jobs in August, well above forecasts, and June and July payrolls were revised up by a combined 55,000, signaling firmer labor-market momentum.
Following Friday's jobs report, traders lifted the probability of a quarter-point Fed rate hike in mid-September to about 58% according to the CME FedWatch tool.
Short- and long-term Treasury yields rose after the report, with the 2-year reaching a 52-week high near 4.38% and the 10-year climbing toward 4.78%, increasing borrowing-cost pressure on markets.
Equity benchmarks slipped modestly on the news while company earnings drove large idiosyncratic moves, including a roughly 17% drop in Lululemon after it cut guidance and a about 20% fall for Guidewire, while chip stocks outperformed.
With labor concerns eased by the payrolls data, investors are now focused on next week's Producer Price Index and August Consumer Price Index prints because those inflation readings will be key inputs for the Fed's September decision.