NEW YORK — The probability that the Federal Reserve raises interest rates at its September meeting now sits at 60.4 percent, according to CME FedWatch data. The figure is a coin flip that doesn’t feel like one to traders who spent August watching Nasdaq technology names give back months of gains in two sessions.
US equity markets close Monday for Labor Day. When they reopen Tuesday, three months of rate assumptions will have to survive contact with the heaviest data week of the summer.
August ended on an ambiguous note. The S&P 500 gained 2.6 percent for the month; the Nasdaq composite added 3.9 percent; the Dow Jones Industrial Average rose 1.3 percent. Those numbers look reassuring until the last two sessions are examined separately. After Federal Reserve Governor Kevin Warsh told the Jackson Hole symposium on Thursday that the central bank still had “work to do” on inflation, without signaling any near-term pivot, markets spent Friday in a controlled rotation rather than a recovery. The Dow Jones closed nearly flat on August 29, down 0.02 percent at 53,559.99. The S&P 500 fell 0.25 percent to 7,711.76. The Nasdaq composite dropped 0.52 percent to 26,402.42.
What Warsh said at Jackson Hole was not dramatically different from what the Fed has said before. What changed was the confidence traders had assigned to a rate-cut scenario that no longer seemed reliable. NPR reported the remarks were sharper than markets had anticipated, landing at a moment when technology stocks had already spent the summer pricing in at least two Fed cuts before the end of 2026. Warsh delivered neither a promise of cuts nor a promise of hikes. He delivered a posture. For equity markets, posture turned out to be enough.
The week ahead will test whether Friday’s rotation holds or accelerates. Tuesday brings the Institute for Supply Management’s manufacturing PMI, the first major data point of September and an early signal on whether the economic resilience that survived August’s rate argument is still intact. A reading above 50 signals expansion; anything below renews concern about whether the Fed is tightening into a slowdown. Some economists expect the August PMI to reflect continued demand from infrastructure spending and domestic reshoring, though six-month highs in energy input costs complicate the picture. Wednesday brings JOLTS, the Bureau of Labor Statistics job-openings survey that has become one of the Fed’s preferred proxies for labor-market slack. A job-openings figure above 8 million would suggest the labor market remains too tight for the Fed’s purposes, strengthening the case for September action. The August nonfarm payrolls report, the most consequential single number of the week, lands Friday, September 5. ABC News reported Wall Street is watching the jobs data closely, with a hot reading likely to reinforce September hike bets while a soft figure could restore some of the rate-cut optimism that Warsh’s remarks eroded.
Crude oil is the secondary input the headline data will not fully capture. Prices settled near $90 a barrel at the end of August, high enough to sustain core goods inflation in transportation and industrial costs, but not so elevated as to constitute a separate shock narrative on its own. The crude oil price on August 31 illustrated that tension: elevated without being alarming, persistent without resolution. That is the hardest kind of input for the Fed to address, because it does not justify an emergency response and will not disappear on its own.
The Dow’s composition provides one lens on what September might look like if rates stay elevated longer than expected. Industrials like Caterpillar, which posted a modest gain on August 29 as technology names sold off, earn money through the economic cycle rather than on assumptions about cheap capital. Unlike the Nasdaq’s weighting toward companies valued on future growth projections, the Dow’s 30 components lean toward manufacturers, financial institutions, healthcare companies, and energy firms. In a sustained high-rate environment, that composition acts as a structural buffer against the most acute form of discount-rate pain. If the Warsh posture holds through September, if the full FOMC endorses his tone at the September meeting, the divergence between rate-sensitive technology names and economically-exposed industrials that began in August may deepen into a structural trend.
That is the uncertainty the market carries into September. The September FOMC meeting is September 16 and 17. Between now and then, the jobs report and the ISM survey will either validate Warsh’s hawkishness or complicate it. Until those numbers land, the 60.4 percent probability attached to a September rate hike is doing meaningful work: it is high enough to suppress appetite for growth-oriented positions and low enough that a single strong data release could push it past the threshold where a hike becomes consensus rather than odds-on. The week that begins September 2 will almost certainly move that number in one direction. Which direction is what the market does not yet know.
Related Posts
