Analysts say the probability of the Federal Reserve raising interest rates in September is close to 50-50.

Analyst Brandon Brown stated that after the strong non-farm payrolls report was released, the market is currently pricing in a rate hike of about 15 basis points for the Federal Reserve’s September meeting. Given that Federal Reserve Governor Waller emphasized the next round of inflation data will determine his voting stance, it is reasonable for market expectations regarding a September rate hike to be close to 50/50 before the inflation data is announced. We believe that the Federal Reserve Committee is very likely to observe another split of opinions, especially if inflation data remains mild and the Fed once again chooses to hold steady. Based on the transmission effect from PPI and CPI to core PCE inflation, the threshold for either maintaining rates or supporting a hike may hinge on core PCE’s month-on-month increase reaching around 0.25%. Looking at the long end of the yield curve, the market expects the total rate increase to be slightly higher than 60 basis points by mid-2027. However, we believe that even if the data is strong, it is unlikely that there will be more than three rate hikes in the short term.