2026-09-02

ADP Private Payrolls Miss Badly at 38,000 in August - NY Fed's Williams Says Yield Surge Reflects a Strong Economy, Not Inflation, Yet September Hike Odds Hold at 66%

Written & reviewed by the TradeSmrt editorial team · 2026-09-02

In this article

What Happened
Why Dovish-Looking Data Didn't Move the Odds
What to Take Away From This
FAQ
Sources

What Happened

Wall Street snapped a three-session losing streak on Wednesday, September 2. The S&P 500 closed up 16.14 points (0.21%) at 7,647.61, the Dow Jones Industrial Average rose 293.69 points (0.56%) to 53,060.57, and the Nasdaq Composite added 10.94 points (0.04%) to 26,110.72. The gains were modest, but they broke a three-day slide: a day earlier, on Tuesday, September 1, the Nasdaq had fallen 1.03%, the S&P 500 0.70%, and the Dow 0.79%, hammered by a tanker attack in the Strait of Hormuz and a spike in Treasury yields.

Two pieces of news drove Wednesday's turnaround. The first was a much weaker-than-expected jobs reading. ADP's August National Employment Report showed U.S. private-sector employers added just 38,000 jobs, badly missing the 47,000 consensus estimate and coming in below July's 46,000 - the slowest pace of hiring since January. The deceleration has now stretched across four straight months: private payroll growth ran above 100,000 in both April and May, slowed to 95,000 in June, dropped to 46,000 in July, and fell further to 38,000 in August. By sector, manufacturing shed 17,000 jobs, and professional/business services and information also posted losses, while education and health care, construction, and leisure and hospitality all showed solid gains. On pay, ADP reported that base wages for job-stayers rose 3.2% year over year, while total pay growth across the private sector came in at 4.7%.

The second driver was a set of comments from New York Fed President John Williams. In a CNBC interview that morning, Williams attributed the recent surge in Treasury yields not to inflation fears but to "a strong U.S. economy and a strong economic outlook fueled by big investments in AI and data centers and technology in general." He added that there were "no clear signs right now" that a September rate hike would be necessary, describing his approach to the coming decision as "wait-and-see." Coming from a sitting FOMC voter, the explicit reframing of the yield spike as a growth story rather than a panic story appeared to calm some of the anxiety that had been building in bond markets.

What stood out, though, was what didn't move: despite two ostensibly dovish data points, the CME FedWatch-implied probability of a quarter-point hike at the September 15-16 FOMC meeting held near 66%, essentially unchanged from where it had settled after Fed Chair nominee Kevin Warsh's hawkish Jackson Hole speech pushed the odds from 35% to the high 50s and then higher still over the following days.

Why Dovish-Looking Data Didn't Move the Odds

That disconnect is the real story here, and it comes down to three overlapping factors.

First, Williams's remarks were more nuanced than a simple dovish signal. He said there was no clear signal that a hike was necessary - he did not rule one out. And by attributing the yield spike to economic strength and an AI investment boom rather than inflation risk, he arguably reinforced the opposite case just as much as he calmed it: if the economy really is running that hot, the Fed has less reason to rush toward easier policy. His comments defused fear about the yield spike itself without actually undercutting the case for a hike.

Second, markets had already built substantial conviction around the hawkish narrative that formed after Jackson Hole. Barclays and other banks are still forecasting two hikes this year - September and December - and that kind of institutional positioning doesn't unwind on the back of a single data release. ADP's report also functions as a preview ahead of the Labor Department's official nonfarm payrolls report, due September 4, and its track record for precisely matching the government's number is imperfect enough that traders tend not to overreact to it in isolation.

Third, and most fundamentally, the current cycle's rise in long-term yields is being driven less by the Fed's policy rate path than by supply-and-demand dynamics at the long end of the curve - what economists call the term premium. Oil-price spikes tied to the Strait of Hormuz tanker attack, surging capital demand from AI data-center buildouts, and expanding Treasury issuance to fund the federal deficit are all pushing long-dated yields higher simultaneously, largely independent of what the Fed does with its overnight rate. That's precisely the mechanism Williams was describing. Because that structural pressure doesn't hinge on any single jobs report, a soft ADP print - even a four-month deceleration trend - isn't enough on its own to reverse it.

Seen through that lens, Wednesday's rebound reads less as "rate-hike fears have been resolved" and more as "the cause of the yield spike has been reframed as explainable growth rather than uncontrolled panic," which took some of the edge off market anxiety without changing the underlying policy calculus. The muted size of the gains - 0.04% to 0.56% across the three major indexes - supports that more cautious reading over a "relief rally" narrative.

What to Take Away From This

One jobs report rarely settles the Fed's next move. September hike odds barely budged despite a clear ADP miss, a reminder that markets weigh multiple data points and an already-formed narrative together rather than reacting to any single release in isolation. The September 4 nonfarm payrolls report is the next real test.
Distinguish between yield spikes driven by inflation fear and those driven by growth strength. The two carry very different implications for stocks. When a Fed official like Williams frames a yield surge as reflecting a hot economy rather than inflation panic, market fear can ease even while the underlying rate level stays exactly the same.
Long-end yields and the Fed's policy rate are driven by different forces. Deficits, Treasury issuance volume, and geopolitical oil shocks can push long-term yields higher independent of anything the Fed does. Treating every yield spike as automatic proof the Fed has turned more hawkish is a common and costly misread.
Learn to tell a relief rally from a genuine trend reversal. Wednesday's 0.04%-0.56% gains reflect calmed panic, not a decisive turn. Until the next catalysts land - the September 4 jobs report and this week's ISM Services PMI - a cautious read is warranted.
Watch the four-month deceleration trend itself, not just one month's number. Private hiring growth has slowed from six-figure monthly gains in April and May to just 38,000 in August. If that trend is real rather than noise, it will eventually work its way into the Fed's own calculus regardless of any single week's headlines.

FAQ

How does the ADP report differ from the official government jobs report?

ADP's National Employment Report is a private release built on the company's own payroll-processing data, while the Labor Department's nonfarm payrolls figure is the official government statistic, compiled from separate business and household surveys. The two use different methodologies and can diverge meaningfully in any given month; markets generally treat the government's number as the more authoritative read. ADP is released a few days ahead of the official report - this time, September 4 - which is why it functions as an early preview rather than a final answer.

Why does the New York Fed president's opinion carry extra weight?

The New York Fed president holds a permanent voting seat on the FOMC, one of only a handful of officials who vote at every meeting, and the New York Fed itself is the institution that actually executes the Fed's open-market operations - buying and selling Treasuries. That operational role gives Williams's comments on bond-market mechanics particular credibility, and markets tend to react to them more directly than to remarks from regional presidents who rotate in and out of voting seats.

How likely is an actual rate hike at the September FOMC meeting?

As of September 2, CME FedWatch put the odds of a quarter-point hike at the September 15-16 meeting near 66%. That probability jumped sharply after Kevin Warsh's Jackson Hole speech and remains sensitive to incoming data - most importantly the September 4 nonfarm payrolls report and this week's ISM Services PMI - so it should be read as a snapshot rather than a locked-in outcome.

Sources

This article is an original synthesis and analysis based on the reporting below, not a reproduction of the original articles. Please check the source articles directly for the most current figures and details.

⚠️ This article is for informational purposes only and is not investment advice. Market conditions change constantly - always verify the latest data before making investment decisions.