Solid Job Gains Keep Fed’s Focus on Inflation

For the week ending 4 September 2026

As of midday Friday, global equities were modestly higher on the week as markets digested strong US payrolls, higher oil prices, and elevated bond yields. The yield on the US 10-year Treasury note rose to 4.77% from 4.70% last Friday, while the price of a barrel of West Texas Intermediate crude oil rose $8 to $90.50. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 16.05 from 16.90 last week.

MACRO NEWS

Fed’s next move hinges on inflation data

Investors spent the week trying to gauge whether the Fed will raise rates at its September 16 meeting. Governor Christopher Waller, a key swing vote on the FOMC, said on Thursday that he is inclined to support holding rates steady if disinflation continues. He added that recent data finally show some disinflation and that the September decision will hinge on the August inflation report. Odds of a quarter-point hike fell to below 50% after his comments, down from 63% at Wednesday’s close, before rebounding after Friday’s solid payrolls print. August producer and consumer price indices are set for release next Thursday and Friday morning, respectively.

Other officials struck different tones, however. Fed Governor Michael Barr said inflation is still too high and that the Fed should raise rates if price pressures don’t moderate. New York Fed President John Williams called the recent data encouraging and believes rates are in a “good place,” noting that higher energy prices have not yet spread to services.

Strong August US payrolls up odds of Fed hike

US nonfarm payrolls rose a stronger-than-expected 162,000 in August, tripling forecasts, while revisions to the prior two months’ readings added an additional 55,000 positions (including reversing a negative July print). The unemployment rate held steady at 4.1%. The market’s focus will now turn to next week’s inflation readings. Heading into the jobs report, investors suspected that the Fed would have a difficult time hiking rates if payrolls fell in back-to-back months. Today’s strong figures alleviate those concerns and clear the way for a hike if August inflation figures come in hot.

US and Iran trade strikes in the Strait of Hormuz

The conflict between Washington and Tehran escalated sharply this week. The US launched a preemptive strike against an Iranian island in the Strait of Hormuz to stop Iran from laying fresh sea mines. Iran’s Islamic Revolutionary Guard Corps retaliated by firing missiles at US bases in Jordan. President Trump said the US intercepted eight Iranian missiles aimed at the base in Jordan and warned that Iran would be hit again if it retaliates further.

The fighting soon spread to the region’s tankers. Two supertankers were reportedly struck by projectiles in the strait late Monday after the two sides exchanged blows earlier that day. The US responded on Tuesday by hitting two Iranian crude carriers and announcing a “tanker for tanker policy.” Oil prices climbed toward $90 a barrel as the violence intensified.

Despite the hostilities, CNN reported that the US military escorted 40 commercial vessels carrying 18 million barrels of oil through the strait — a wartime high. In the same operation, the US struck nearly 60 military targets around the waterway, including air defense sites, radar systems, mine-laying capabilities, and communications sites.

Treasury Secretary Scott Bessent said the combination of sanctions and a naval blockade would economically strangle Iran, and he predicts that pipelines would let shippers bypass Hormuz within two years. On Thursday, he welcomed the participation of the European Union in “Operation Economic Outcast.” South Korea is also reportedly considering  offering military support to the US effort to keep the Strait of Hormuz open.

Global bond yields climb to multiyear highs

Government bond yields rose around the world this week, reaching levels not seen in years. The yield on the US 10-year Treasury climbed to 4.85%, its highest since January 2025. In the UK, the 10-year gilt yield reached 5.23%, the highest since 2008. Japanese government bond yields touched 3%, the highest since 1996. A Bloomberg gauge of global sovereign bonds rose to 3.78%, the highest since mid-2008.

Fed Chairman Kevin Warsh told G20 officials that the global savings glut that once held yields down has reversed into an investment surge. Analysts at Deutsche Bank framed the move as a continuation of the normalization that began after the financial repression of the 2010s rather than a sign that markets are now focused on fiscal concerns.

While hosting the G-20 meeting this week, Bessent said that US bond buybacks free up balance sheet space for banks, giving them more room to buy bonds at auction. He added that the administration is working to bring the US budget deficit down as a share of GDP.

QUICK HITS

Global purchasing managers’ indices indicate that economic growth remains solid amid strong advances in US and Japanese services measures.

A White House fact sheet outlined a deal under which private oil firm North American Blue Energy Partners would receive a 100-year lease for 17 Venezuelan oilfields that are holding roughly 65 billion barrels of reserves. The US would take a 35% equity stake in the parent company, receive a guaranteed 20% of production, and hold a right of first refusal on the rest. Venezuela’s interim president said a related energy agreement would run for 25 years and target an output of 1.5 million barrels per day.

Eurozone consumer prices rose a preliminary 3.3% in August from a year earlier, setting the stage for an ECB rate hike next week.

US job openings rose, with the JOLTS openings rate climbing to 4.4% from 4.3%. The quits rate fell to 1.9% from 2%, and the layoff rate slipped to 1% from 1.1%.

The Bank of Japan signaled a more hawkish stance. Governor Kazuo Ueda said the board would assess upside inflation risks at its September meeting and will consider a hike at every meeting going forward. Board member Hajime Takata left the door open to both a larger increase and back-to-back hikes.

The Bank of Canada held its policy rate at 2.25% but said it is prepared to raise rates if inflation runs too high. However, on Friday, Canada reported a 42,000 decline in jobs, a much weaker than expected outcome that partially offsets the big upside surprise from the month before.

President Trump signed a stopgap funding bill that keeps federal funding at current levels through December 11, averting a government shutdown at the end of the US fiscal year (the end of September).

Commerce Secretary Howard Lutnick said the administration is weighing new tariffs on imported semiconductors, likely paired with relief for companies that invest in US manufacturing.

Iceland’s voters narrowly rejected resuming EU accession talks.

European Commission President Ursula von der Leyen said Germany faced an attack by Russia, tying a drone incident in Leipzig to Moscow.

The Financial Times reported that Russia has been secretly helping Iran develop advanced supersonic cruise missiles, one of the most significant known transfers of strategic military technology from Moscow to Tehran.

This week, European natural gas futures rose to their highest level since 2023.

The Dutch central bank is shifting gold reserves from North America to Europe, citing geopolitical unrest and the need to deploy the metal quickly in a crisis.

THE WEEK AHEAD

Monday: US markets closed for Labor Day

Tuesday: China CPI and PPI; US NFIB small business optimism

Wednesday: US producer price index

Thursday: European Central Bank meeting; US weekly jobless claims

Friday: US University of Michigan consumer sentiment; UK monthly GDP