The jobs report on Friday blew it out of the water, with nonfarm-payrolls expanding by 528,000 in July, more than double expectations of a 250,000 increase. The unemployment rate fell to a further 3.5%, marking its lowest level since 1969, while average hourly earnings grew at 5.2% Y/Y. That data doesn't look too consistent with the last two quarters of economic contraction, and indeed, it has sparked "recession" talk once again ahead of the CPI report on Wednesday.

While stocks traded mixed on the news, the 2y10y yield curve inverted by the highest margin since the dot-com crash. The thinking here is that the job gains will give the Fed more room to tighten, especially as accelerated wages intensify a threat of more entrenched inflation. The central bank is also trying to restrict monetary policy without negative consequences for the consumer and economy, but the recent figures could complicate its efforts of engineering a more temperate employment environment.

"Jobs haven't slowed at all in response to Federal Reserve tightening. This is a double-edged sword," wrote Michael Gapen, chief U.S. economist at Bank of America. While the odds of a "near-term recession is lower... the risk of a hard landing is rising."

Traders now see a 68.5% chance of a third 75-basis-point move in September, according to the CME Group's FedWatch tool that measures pricing in the fed funds futures markets.