All Eyes on US CPI After BoC Hawkish Hold, Jobs Beat

A separate dynamic unfolded in U.S. bond markets. Treasury yields rose sharply after Fed Chair Warsh's hawkish Jackson Hole speech. The 10-year yield touched 4.82%, its highest level since late 2023. The move partially reversed after New York Fed President Williams and Governor Waller pushed back against the idea that a September rate hike was a foregone conclusion. Waller said he would be "inclined to support holding rates steady if inflation data continue to cooperate." Markets took the hint. The implied probability of a September hike fell to around 50% from nearly two-thirds earlier in the week. It retraced slightly Friday after a strong jobs report.

A re-escalation in the Middle East conflict has pushed oil prices higher, with WTI hovering near $90 a barrel. Growing concerns about government debt burdens and a surge in investment-grade issuance by hyperscalers added to the upward pressure on yields. Ten-year Treasury yields remain about 60 basis points above year-ago levels, tightening financial conditions even if the Fed ultimately holds steady this month.

Friday's payroll report was a bright spot. Nonfarm payrolls rose 162,000 in August, well above the 55,000 consensus estimate. Revisions added 55,000 to prior months, flipping July's initially reported 23,000 decline into a 21,000 gain. The three-month average stands at a healthy 71,000. The unemployment rate held at 4.1%. The broader U-6 measure, which includes marginally attached workers, fell to a 14-month low of 7.7%. Vehicle sales remained strong at 16.8 million annualized in August, extending a six-month run above 16 million units. ISM surveys reinforced the resilience story. Both manufacturing and services indexes stayed well in expansionary territory, though manufacturing edged lower. The services sector strengthened for a second straight month. The Fed's Beige Book reported modest economic expansion in 10 of 12 districts, one fewer than in July.

Attention now shifts to next week's U.S. inflation data. A softer CPI reading would likely keep the Fed on hold. A hotter print would solidify the case for some tightening. Most Fed officials view current policy as "somewhat restrictive," so any tightening would likely be limited to one or two quarter-point moves. The August CPI report is due Wednesday.