What happens to the Fed's September plans when the jobs data falls apart? A shock NFP miss has traders slashing hike odds and reshaping the outlook for the Fed rate decision, with gold and the dollar bracing for whatever comes next.
One of the most intriguing features in the markets for August 2026 is US monetary policy, with expectations for the Fed’s meeting next month shifting rapidly around major data. In this week’s episode of Trading Talks, Exness’ weekly podcast, I discuss the Fed’s outlook for the rest of the year and its possible impact on markets with Dhwani Mehta from FX Street. This article summarises some of the key recent factors affecting the Fed’s near future outlook. For the full story about upcoming monetary policy, watch or listen to the podcast.
Key takeaways
- NFP shock rattles rate expectations. July's payrolls plunged by 23,000 against a forecast of an 80,000 increase, lowering the odds of a hike at the Fed rate decision September 2026.
- Unemployment ticked down despite the miss. The jobless rate eased to 4.1%, but markets stayed focused on the weak headline number rather than this modest silver lining.
- Hike probability has nearly halved. CME FedWatch now puts the odds of a September hike to 3.75-4% at around 45%, down from a clear majority just weeks earlier.
- A full-year hold remains unlikely for now. Only about 25% of traders expect the Fed to stay on hold through the end of 2026, though Gulf-conflict de-escalation could shift that view.
- Gold stands to benefit from a softer Fed. The NFP effect on gold price 2026 could grow if expectations shift further toward a hold, while the dollar may keep weakening in the meantime.
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Disappointing NFP contributes to lower probability of a hike
7 August’s NFP with data for July was significantly worse than expected, coming in at negative 23,000 against the consensus of an increase of about 80,000:
Although unemployment was positive, declining unexpectedly to 4.1%, the focus was on the weaker headline NFP. In many cases, a less positive NFP indicates potentially lower inflation, and the opposite is also true, so this is one of the recent factors that has strengthened expectations that the Fed could hold rates next month and hike only once more before year-end.
Summary:
The weak July payrolls print has clearly shifted sentiment away from a September hike, even while unemployment ticks lower. Traders now see the labor market as fragile enough to keep the Fed cautious heading into its next meeting.
The latest guesses for the Fed’s policy
In late July and early August 2026 before the latest NFP, a majority of participants had expected the Fed to hike rates to 3.75-4% on 16 September. According to CME FedWatch, the probability of that happening has now declined to around 45%.
Given the context for inflation in recent months, this isn’t hugely surprising to me. Inflation rose less this summer than feared by some quarters around the start of the conflict in the Gulf, and June’s annual headline inflation coming in at 3.5% was significantly lower than the consensus. Lower inflation figures might pour more water on predictions of the Fed adopting a hawkish position.
As of the middle of August, the probability of the Fed holding all the way to the end of 2026 is pretty low, only around 25% based on CME FedWatch. I’m considering this possibility actively since a lull in hostilities in the Gulf seems pretty likely. However, a confirmed peace also feels like a distant prospect, and, relatively speaking, the USA is less vulnerable to oil supply disruptions from the Gulf compared to other countries.
Summary:
With hike odds falling to around 45% and a full-year hold still seen as unlikely, the Fed's path remains genuinely uncertain rather than settled in either direction. Incoming inflation data and developments in the Gulf could still tip the balance before September.
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Final thoughts: Possibilities for major instruments in different scenarios
If the current consensus of only one Fed hike persists, the US dollar might continue to decline against various currencies while gold might gain. The main scenario I want to watch for is the possible increase in the probability of no change in the funds rate until the end of the year. If this becomes more expected, gold has the potential to gain significantly, but I’d stress that it’s too early to have firm expectations for rates at the end of the year. For now, early 2026’s expectations of a possible Fed rate cut have vanished entirely.
In my discussion with Dhwani this week, we went into some detail about possible situations and how major instruments like gold and euro-dollar could react to them. We shared a range of perspectives on the most likely outcomes but agreed that traders need to be prepared for a range of different situations that could develop in September and later in 2026.
Check out this week’s podcast for the full discussion with Dhwani from FX Street about possible monetary policy trajectories in the second half of 2026, and how they might affect top CFDs. Stay tuned next week for the new episode of Trading Talks where we’ll be sharing opinions on what could be next in the conflict in the Gulf, and whether and how it might be resolved.
Disclaimer: This article is for informational purposes only and is not trading or investment advice. Trading involves significant risk, and you should conduct your own research or consult a financial advisor before making any decisions.
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