A surprisingly robust jobs report has been enough to boost market bets on further interest rate hikes, triggering a notable bearish flattening of the US Treasury yield curve. With the new Fed Chair, Kevin Warsh, scaling back forward guidance, the significance of economic data has risen considerably.

This places additional pressure on Warsh to deliver on the hawkish signals released at the Jackson Hole symposium. As central banks worldwide tighten their policies, a decision by the Federal Reserve to remain on hold could lead to a steeper US Treasury yield curve.

The loss of temporary protected status for a large number of workers had previously been a source of uncertainty, theoretically making it possible for nonfarm payrolls to decline for a second consecutive month. However, August's figures not only beat expectations but also saw upward revisions to prior data. Combined with a rising labor force participation rate and strong wage growth, the jobs report can be described as comprehensively robust.

This makes next week's CPI report even more critical, as it will serve as the final major economic indicator before the September Federal Open Market Committee meeting. Current market pricing suggests a roughly 60% probability of a rate hike at that time.

It is worth noting that despite the somewhat dovish remarks made by Fed Governor Waller on Thursday regarding the upcoming inflation report, energy prices continue to exert upward pressure on headline inflation, with US diesel prices hitting record highs. Even if core inflation meets expectations at 2.4%, the market could interpret a decision to maintain rates as dovish, pushing down long-end Treasury yields and weighing on the US dollar. Meanwhile, with yen carry trades accelerating their unwinding, this could further trigger a series of fragile points across the global macro markets.