No, Friday's jobs report hasn't materially boosted Fed rate hike odds

The argument for a Fed interest rate hike later this month is getting louder in the wake of Friday’s stellar jobs report.

But look under the hood, and the market-implied probability of that outcome remains modest, leaving the outlook fundamentally unchanged from how traders saw it a week ago, well before the data release.

Traders currently assign a 58% probability that the Fed will raise its benchmark borrowing cost by 25 basis points to a 3.75%–4% range, according to the CME FedWatch Tool.

This pricing effectively mirrors market expectations from a week ago, when the aftereffects of Fed Chief Kevin Warsh’s hawkish Jackson Hole speech first rippled through the markets.

In other words, those with actual skin in the game aren’t pricing in significantly higher odds following the jobs report. While social media chatter and the analyst community lean increasingly hawkish, the smart money is essentially holding firm.

This contrasts the more dramatic story the market reaction to Friday’s jobs data told. Bitcoin BTC$79,667.71 fell from $81,300 to $78,700 within a couple of hours while the two-year Treasury note, which is sensitive to interest rate expectations, jumped to 4.42% from 4.36%.

But that volatility looks overdone when viewed against the backdrop of the largely unchanged Fed rate hike odds.

The message, therefore, is that the September rate hike is a lingering possibility rather than a certainty. It could easily be off the table if the Sept. 11 inflation data comes in below expectations.

Some analysts have already argued that raising interest rates during an oil shock would be a mistake, which would do more harm than good. The Fed rate decision is due on Sept. 16.