Nonfarm Payrolls 162,000, Three Times The Expected! Is A Rate Hike In September Already A Certainty?

Last Thursday, we divided the nonfarm payrolls into three scenarios: between 40,000 and 60,000, where the "hold" camp holds their ground; below 40,000, the market shifts toward a recession in pricing; significantly above 80,000, the "September rate hike" narrative returns. The actual figure is 162,000, nearly three times the upper limit of Waller's "ideal range."

Repricing began immediately. CME FedWatch shows the probability of a rate hike in September rose from about 50% before the data to around 60%, reaching as high as 65% intraday, and the probability of at least one rate hike this year is as high as 83%; A reporter known as the "Fed's mouthpiece" commented even more bluntly: "The solid August employment data has removed a major obstacle on the path to rate hikes." From then on, the only suspense left before the September 15-16 rate meeting is the August CPI to be released this Friday.

A Detailed Explanation Of This Non-Farm Payroll

In terms of total numbers, 162,000 not only tripled expectations but also hit a new high since March this year; In terms of revisions, July's data turned positive from negative to +21,000, with a combined 55,000 revisions for June and July, meaning the previous judgment that "the labor market is weakening" is being reversed. Friday's strength is not a statistical noise from a single month's rebound but a renewed acceleration over the past quarter; Structurally, leisure hotels, local government education, manufacturing, and construction sectors all rebounded simultaneously, with average weekly working hours extending to 34.4 hours, the longest since March 2024, and average hourly wage growth accelerating to 3.8% year-on-year.

With three layers stacked, the report sends only one message: the labor market has not cooled but is heating up again. This is exactly the data pattern Waller least wanted to see when he switched back to "conditionally maintain" on September 3. His premise for "holding the table" was a moderate slowdown in employment, continued improvement in inflation, and even drawing an "ideal range" of 40,000 to 60,000 nonfarm payrolls. The actual numbers were close to three times the upper limit of the range, and the data forcibly pulled back this "pendulum maker's" pendulum.

The Market Repriced Overnight

Repricing unfolds along a clear chain. First is interest rate futures: the probability of a rate hike in September rose from about 50% to around 60%, touched 65% intraday, and 83% probable of at least one rate hike this year. Traders priced in a cumulative rate hike by year-end at about 38 basis points.

Second is the bond market. Expectations of rate hikes directly pushed up short-term rates; the 2-year U.S. Treasury yield surged 7.6 basis points on the day of the data release, closing at 4.37% for the week, while the 10-year yield rose to 4.78%.

Third is the stock market. Rising interest rates compressed valuations, and the three major indices all closed lower last Friday: the Dow fell 0.51% to 53,414.25, the S&P 500 dropped 0.38% to 7,718.60, and the Nasdaq fell 0.29% to 26,506.99. But even more intriguing than the decline was the structure: the Philadelphia Semiconductor Index surged 3% against the trend, SanDisk rose 11.9%, SK Hynix rose 8.1%, and Micron rose 6.1%; During the same period, Tesla plunged 5.92% due to the Cybercab launch meeting falling short of expectations, wiping out about $88 billion in market value in a single day. The coexistence of a slight index drop and a major stock crash indicates that funds are not exiting the market to avoid risk, but are switching between "interest-sensitive assets" and "AI hardware booms": the more fully the market prices in rate hikes, the more it needs to find profit stories that can weather tightening cycles

Fourth is gold and cryptocurrencies. Gold is the first to bear the brunt: spot gold plunged over 2% last Friday to $4,364.99, closing at $4,430.15. December gold futures settlement fell 1.4% to $4,476.60; Bitcoin fell below the $80,000 mark on the same day. In contrast, on Saturday, the Strait of Hormuz saw another direct clash between the US and Iran. Logically, geopolitical conflicts should have pushed gold prices higher, but this morning, Brent crude broke through $97 per barrel, while gold prices remained pressured near $4,430. Facing expectations of rate hikes, gold's safe-haven nature temporarily gave way to opportunity cost.

The Ticket Office Revalued

Returning to last Thursday's 6:5:1 vote review, what has this nonfarm payroll changed? Previously, the defense of "holding the balance unchanged" was mostly based on the assumption that employment is moderately slowing and no interest rate hikes are needed, but now that path has been blocked.

But the vote is not one-sided, because Waller's terms have not yet failed. His stance has always been consistent: if August CPI shows continued improvement in inflation, he prefers to keep rates unchanged. The New York Fed president also believes that as the effects of tariffs fade, inflation is gradually declining, and current rates are already well-restrictive, so he tends to hold steady. In other words, employment data determines whether "an increase is allowed," while inflation data decides "whether to raise rates."

Powell, who has rarely spoken publicly since May, has a heavier silence after the non-farm payrolls. After the non-farm payroll rewrites, a 6:5:1 vote is needed, but no matter how the numbers are counted, as long as the key vote leans toward rate hikes, the September 15-16 meeting could see the first 6-6 draw since 1936; If the leaning continues, the "hold-off" camp could narrowly win by one vote

At this point, the scenario scenario has left only one variable. If August's CPI year-on-year continues to fall from 3.4% in July, the 'maintain' camp will have the last piece of the puzzle Waller demanded, holding things on in September and reconsidering at year-end; If CPI exceeds expectations again, the market consensus is very straightforward: 'A rate hike is almost certain.'

But the trouble is that bad news about inflation may be on the way. This morning, Brent crude broke through $97 per barrel. Iran's Supreme National Security Council Secretary Rezai announced that certain waters in the Strait of Hormuz would be designated as "no-go" zones in the coming days, and OPEC+'s seven major oil producers decided to pause production increases in October; The average retail price of U.S. diesel has risen to a historic record of $5.85 per gallon. There is a delay in energy prices passing into core inflation, but this string of figures is enough to make traders think twice before betting on a "CPI decline"—every resonance between oil prices and inflation expectations further squeezes Waller's room to maneuver.