Traders on popular prediction platforms like Kalshi and Polymarket have boosted their odds that the Federal Reserve will hike interest rates as soon as in September after the strong nonfarm payrolls data.
Odds that the Fed will hike in its September meeting rose to 50% on Polymarket. Similarly, odds that it will hike before 2027 have risen to 73% on Kalshi. The closely-watched CME (NYSE:CME) FedWatch Tool places the possibility of a hike happening in September at 59%.
These odds have been rising as several factors converged. A recent report showed that the headline and core purchasers consumption expenditure (PCE) inflation remained above 2% in July. PCE is Federal Reserve’s favorite inflation gauge.
A separate report released on Friday showed that the economy added 162k jobs jobs, much higher than the expected 65k. The unemployment rate remained at 4.0%, while the Bureau of Labor Statistics (BLS) upgraded its July report.
US to Release August Inflation Report
Focus now shifts to the upcoming US inflation report that comes out on Friday. Economists expect the upcoming report to show that inflation remained above the 2% target in August as energy prices rose. Brent and West Texas Intermediate have jumped in the past few days, pushing gasoline prices above $4 and diesel prices to a record high.
The upcoming inflation report is important because Christopher Waller, Fed Governor, hinted that it will help him determine whether to hike rates in the next meeting. Other Fed officials have signaled that the report will help them determine whether to hike rates or not.
This month’s decision comes at a time when President Donald Trump is pressuring the Fed to cut rates. In a long Truth Social post on Friday, he maintained that the bank should cut rates to boost economic growth. He maintains that rates should be between 0.50% and 1% and warned that he may be forced to cut trade with countries that the US has a trade deficit with.
The Fed is also confronting the fact that government spending is rising and the public debt has jumped to over $40 trillion.
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