Fed rate hike odds firm after strong payrolls
The probability of a 25bps hike at the September 2026 FOMC meeting rose 4¢ to 56¢, driven by an above‑consensus U‑3 unemployment report. The market now sees only a 42% chance of a hold, and the next CPI print will be the key swing factor.
Key takeaways
- 01
The probability of a 25bps hike at the September 2026 FOMC meeting rose 4¢ to 56¢, driven by an above‑consensus U‑3 unemployment report.
- 02
The market now sees only a 42% chance of a hold, and the next CPI print will be the key swing factor.
- 03
The KXFEDDECISION-26SEP- contract for a 25bp hike saw 28,114 contracts change hands, with the price climbing from 52¢ to 56¢.
Full analysis
The KXFEDDECISION-26SEP- contract for a 25bp hike saw 28,114 contracts change hands, with the price climbing from 52¢ to 56¢. The catalyst was this morning’s U‑3 unemployment rate for July, which came in at 4.1% (above the previous 4.0%) but crucially above the 4.0% threshold that would have signaled weakness. The U‑3 markets (KXU3-26JUL-T4.1) traded at 62¢ for “above 4.1%”, confirming the data point.
A 25bp hike would bring the upper bound of the federal funds rate to 4.00% – currently priced at 1¢ (KXFED-26SEP-T4.00). The most liquid Fed contract is KXFEDDECISION-26SEP- for a 0bps hike, at 42¢ with a 1¢ spread and 28,361 volume. The asymmetry between hike and hold volumes suggests a strong hawkish lean.
The next major catalyst is the July CPI report (KXCPI-26JUL-T0.0) trading at 63¢ for +0% month‑over‑month. If core CPI (KXCPICORE) posts a surprise, the hike probability could retest 60¢. Rate cut markets (KXRATECUT) at 14¢ indicate that any easing is not expected until at least 2027. The KXRATECUTCOUNT contract for “0 cuts in 2026” is trading at 79¢, reinforcing the hawkish outlook.
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