August jobs report could tip Fed toward a September hike

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 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.

Read Also: Fed's Waller Favors Holding Rates in September — Unless August Inflation Runs Hot 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.

Read Also: Bond Yields Are Near 5%: New York Fed's Williams Calls That A Sign Of 'Strong Economy'