'They're going to need to hike rates': Wall Street weighs in on Fed's next policy decision after blowout jobs report

Wall Street experts are considering a hike in interest rates as a response to the recent blowout jobs report and soaring Treasury yields. The US economy added 162,000 jobs in the previous month, surpassing economists' expectations. Fed Chair Kevin Warsh's speech at the Jackson Hole conference was interpreted as hawkish, but Fed Governor Christopher Waller suggested keeping rates steady if the upcoming inflation report shows easing prices.

R.J. Gallo, Federated Hermes chief investment officer, believes a Fed hike would appease short-term bond buyers and reduce pressure from the political side. Macquarie analysts shifted their rate-hike expectations from December to September, with a potential second hike in the first quarter of 2027. Polymarket bettors have a 53% chance of a rate hike and a 48% chance of a rate hold at the upcoming Fed meeting.

The main concern is whether a hike will lower long-end yields. Investors are concerned about rising inflation due to higher oil prices, record-high debt, and increasing auction sizes, leading to a higher term premium on the debt they buy. The United States' position as a borrower has changed, with rising bond market turmoil. Additionally, the AI trade is advancing, with Nvidia nearing all-time highs and Anthropic preparing to go public.

Rate-sensitive buyers are facing a flood of paper from corporate issuers. UBS analysts suggest investors reassess portfolios and consider stock pullbacks as opportunities to add exposure. Strategies include a barbell approach, positioning for both possible Fed outcomes, using longer-dated Treasurys that could benefit from falling rates, and short-term TIPS to hedge against persistent inflation.