Markets are keeping an eye on the chance of a 50 basis point rate cut in September. Société Générale highlights that the main focus of Jackson Hole will be the labour market. Fed officials are discussing whether the current tight labour market results from low participation or a wider economic slowdown. When deciding in September, they will pay more attention to the labour market than to price trends. Rising prices could make rate cuts more likely if they threaten growth. Jackson Hole will be the first moment for the Fed’s communication to face scrutiny. However, events like the Non-Farm Payrolls on September 5 and the Consumer Price Index on September 10 will likely have a bigger impact on market expectations. If the upcoming employment data disappoints again, markets may consider the possibility of a 50 basis point rate cut next month. With the Jackson Hole symposium approaching, our focus shifts to the labour market. Fed officials are debating if the tightness in jobs is a long-term issue or a sign of a slowing economy. This discussion will likely shape interest rates for the rest of the year. We are seeing clear signs of a softening job market that supports the case for rate cuts. The last Non-Farm Payrolls report for July showed only 115,000 jobs added, far below the expected 190,000, and the unemployment rate has risen to 4.2%. This follows a pattern of declining labour data over the past quarter, putting more pressure on the Fed. However, core inflation remains stubborn, with the latest CPI holding at 3.8%. This complicates the Fed’s situation, as they need to balance support for growth with the risk of increasing price pressures. A weak jobs report could force them to prioritize growth over inflation. For traders, volatility will be key as we head into the first week of September. Implied volatility on index options, measured by the VIX, has risen above 19, and we expect it to go up further as key data releases approach. Preparing for a significant market move, rather than predicting a specific direction, could be a wise strategy. This scenario reminds us of the Fed’s proactive shift in 2019 when they cut rates due to fears of global growth, even with a relatively strong domestic economy. This history suggests officials may overlook a single inflation reading if they see a real threat to the labour market. Thus, the Non-Farm Payrolls report on September 5 is now the most crucial event on our radar. If that jobs data disappoints again, markets will likely aggressively test the chance of a 50 basis point rate cut in September. Traders should be ready for significant changes in interest rate futures and currency markets right after the release. The market is set for a big shift, and this report could be the trigger.

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