'They're going to need to hike rates': Wall Street weighs in on Fed's next policy decision after blowout jobs report
Ines Ferré · Senior Business Reporter
Sat, September 5, 2026 at 5:22 PM GMT+3 3 min read
Wall Street sees a blowout jobs report and spiking Treasury yields as another sign that the Fed is going to have to hike rates to clamp down on inflation.
The US economy added 162,000 jobs last month, blowing past economists' expectations. If the Fed was looking for clues of a slowing economy, this report wasn't it.
"They're a little bit behind the curve," Joe Brusuelas, RSM chief economist, told Yahoo Finance, in reference to the central bank. "They're going to need to hike rates if they want to reinforce their credibility, and that's going to cause a lot of problems at 1600 Pennsylvania Avenue."
The Trump administration has been pushing hard for lower rates to bring borrowing costs down and flatten the yield curve, with the president threatening a trade embargo if they don't.
Read more: How jobs, inflation, and the Fed are all related
Fed Chairman Kevin Warsh has been mum about forward guidance, though his speech in Jackson Hole last month was seen as hawkish.
On the day before the Fed's communication blackout period ahead of its next policy meeting began, Fed Governor Christopher Waller signaled support for keeping rates steady if next week's inflation report shows easing prices.
"I think we are leaning into the direction of a Fed hike," R.J. Gallo, Federated Hermes chief investment officer for global fixed income, told Yahoo Finance.
Gallo believes that if the Fed hikes, the move would appease the short-term bond buyers, while demand for long-term rates could rise as the Fed tackles inflation.
"[Warsh] can satisfy markets by hiking [short-term] rates, and if long yields come down, which I think they might, he gets the pressure off him from the political side," Gallo added.
On Friday, Macquarie analysts moved their rate-hike expectation from December to September, with a second one due in the first quarter of 2027.
Polymarket bettors have priced in a 53% chance of a rate hike versus a 48% chance of a rate hold at the Sept. 15-16 meeting.
The question lingering on Wall Street is what will happen if a hike doesn't bring long-end yields down.
Rising inflation from higher oil prices, record-high debt, and increasing auction sizes have led investors to demand a higher term premium on the debt they buy. A recent US Treasury announcement to increase bond buybacks eased yields for about a day before they rose again. An intervention to help Japan's currency, in exchange for not selling its bonds, also did little to stem a rise in the long end of the curve.
"The position of the United States as a borrower is just not quite what it was," Gallo said.
The turmoil in the bond market also comes as the AI trade powers ahead, with Nvidia (NVDA) nearing all-time highs and reports that AI developer Anthropic (ANTH.PVT) is preparing to go public.
"Rate-sensitive buyers are also getting a flood of paper from corporate issuers that they hadn't had to get in years," Steve Sosnick, Interactive Brokers chief strategist, told Yahoo Finance. "The AI build-out is forcing cash flow generators to now go seek cash."
UBS analysts said investors should reassess their portfolios and potentially use stock pullbacks as an opportunity to add exposure.
"We continue to position for the upside in equities and continue to favor AI, power, and resources," the analysts said in a Friday note.
When it comes to bonds, some strategists recommend a barbell approach, positioning for both possible Fed outcomes.
"Nobody really knows," Farther chief investment officer Nick Panitsas told Yahoo Finance.
His firm is using a barbell strategy that includes longer-dated Treasurys, which could benefit from falling rates, along with short-term TIPS, or inflation-protected Treasury bonds, which can help hedge against persistent inflation.
Ines Ferre is a senior business reporter for Yahoo Finance.
Click here for in-depth analysis of the latest stock market news and events moving stock prices
Read the latest financial and business news from Yahoo Finance
Yorumlar (0)
Giriş yaparak yorum yazabilirsin.
İlk yorumu sen yaz.