Jobs and inflation test whether another Fed hike still fits
September payrolls on Friday, October 2, and August inflation on Wednesday, September 30, lead the week of September 28, with futures pricing a 66.4% chance of another Federal Reserve increase.
September's jobs report and August's inflation figures will test whether another Federal Reserve rate increase still fits. As of Friday, September 25, CME's FedWatch tool put the chance of another increase at 66.4%.
The Fed raised its target range by a quarter of a percentage point on Wednesday, September 16, to 3.75% to 4%. The next vote is Wednesday, October 28, and that meeting is not scheduled to include new projections. This week's releases are what that vote will have to go on.
TLT, the fund that holds Treasury bonds maturing in more than 20 years, fell 2.4% last week and touched $78.83, its lowest price in a year.
TLT sold off midweek, closing Friday at $79.32
That low is not a price on the next hike. The 10-year yield rose 16 basis points last week, to 5.17%, and almost all of that rise was a higher real yield, the yield left after expected inflation. Long-term yields rose more than the shorter yields that price the Fed's next move.
Longer Treasury funds fell further last week
- −2.4%
- −0.9%
- −0.4%
- −0.04%
Wednesday's inflation print comes with a rewrite
August income and spending are due at 8:30 a.m. ET on Wednesday, September 30. The release includes the personal consumption expenditures price index, the measure of consumer prices the Fed prefers.
July, still the latest month published, was up 3.7% from a year earlier and 3.3% excluding food and energy, and both rose 0.2% from June. Those are the rates August will be compared with.
The same release can change them. It starts the Bureau of Economic Analysis annual update, revising the accounts from the first quarter of 2021 through the first quarter of 2026, and it publishes updated monthly estimates with the new month.
When the August figures arrive at 8:30 a.m., the 3.7% and 3.3% now on the books may no longer be the baseline. Read the revised trend, not only the new month.
Chair Kevin Warsh set the bar at his press conference on Wednesday, September 16.
"This summer's inflation readings do not tell me that underlying trends have meaningfully improved."
From the latest consumer and producer prices, he estimated that the 12-month change in total PCE prices was likely around 3.6% in August. Trading Economics looks for the monthly pace to pick up from July's 0.2%, to 0.4% for the headline index and 0.3% excluding food and energy.
An annual rate still near 3.6%, and a monthly pace that picks up, would match the description he gave when rates went up. A slower month would challenge it. His estimate was made before this rewrite, so the annual figure only means something once the old months have moved.
Friday's job count is the other test
The official report is Friday, October 2, at 8:30 a.m. ET. August payrolls rose by 162,000, higher than the average monthly gain of 31,000 over the prior 12 months, and July was revised from a loss of 23,000 jobs to a gain of 21,000. Unemployment held at 4.1%.
A FactSet poll looks for 82,500 new jobs in September and an unemployment rate still at 4.1%. A gain of that size would be slower than August and still faster than the pace of the prior year, with unemployment where Warsh said the labor side of the Fed's job was in good shape.
Wednesday at 8:15 a.m. ET, ADP reports private-sector employment, an early read that covers private employers only. August rose by 38,000, and FactSet's poll looks for 58,000 in September.
A Friday count near 82,500, with unemployment still at 4.1%, would leave that description in place. A much smaller gain, or a rise in the jobless rate, would not.
Micron's forecast is the bar for chip funds
Micron reports after the close on Wednesday. In June it forecast revenue of $49 billion to $51 billion and adjusted earnings of $30 to $32 a share for the quarter just ended. The result tests whether demand for the memory used in artificial intelligence systems is still running at that pace.
Micron is about 5% of SMH, a fund that holds semiconductor stocks. A surprise can move that fund, not only the company's own shares.
The open question is whether Wednesday's revised inflation trend and Friday's job count still match the economy Warsh described. A miss on either could move the 66.4%.
Frequently asked
How likely is another Federal Reserve rate increase?
As of Friday, September 25, CME's FedWatch tool put the chance of another increase at 66.4%.
When is the Fed's next rate vote?
The next vote is Wednesday, October 28, and that meeting is not scheduled to include new projections.
What is expected for August inflation?
Trading Economics looks for the monthly pace to pick up from July's 0.2%, to 0.4% for the headline index and 0.3% excluding food and energy.
What is expected for September jobs?
A FactSet poll looks for 82,500 new jobs in September and an unemployment rate still at 4.1%.