Traders Slash October Hike Bets After Jobs Miss
Investors now assign very low odds to another Federal Reserve interest rate increase in October, following a September employment report that fell well short of expectations. CME's FedWatch tool, which tracks trading in 30-day interest rate futures, indicates only a 17% probability that the Fed lifts rates by a quarter percentage point. A week earlier, that figure stood near 36%. On the prediction market Kalshi, the chance of an October hike was just 18%, down from almost 70% seven days prior.[S1]
September's payroll gain of just 29,000 fell well short of forecasts exceeding 80,000. With hiring this soft, the Fed may need to rethink how it weighs its twin goals of maximum employment and price stability, particularly since it lifted rates in September to fight inflation that has run above target for five years. Expectations for an October increase also eased after Wednesday's personal consumption expenditures index, the Fed's favored inflation measure, came in below forecasts. Core prices, stripping out food and energy, climbed 3% in August versus a 3.3% consensus.[S1]
Vanguard senior economist Adam Schickling said the data bolsters the argument for the Federal Reserve to hold off. He observed that while the labor market hasn't weakened dramatically, it also shows scant signs of meaningful improvement, which gives officials grounds to await further information. Although traders now view an October move as improbable, they still expect a December increase. FedWatch puts December odds above 75%, while Kalshi shows 65% odds of a hike. The Fed will reveal its next rate decision after a two-day policy meeting concludes Oct. 28.[S1]
Labor Market Stumbles as Unemployment Ticks Up
Following an outsized jump in August, the U.S. jobs picture weakened in September, with payrolls rising by only 29,000 and the unemployment rate ticking up to 4.2%. Friday's Bureau of Labor Statistics release showed the recovery losing momentum as autumn began, since nonfarm payroll growth came in at roughly one-third of what analysts had projected. With hiring this tepid, the likelihood that the Federal Reserve delivers another rate increase at the Federal Open Market Committee's Oct. 27-28 gathering has diminished.[S2]
Within minutes of the data, CME FedWatch put the probability of the federal funds rate staying in its present 3.75%-4% band at 85%, compared with 75% the prior day. The prediction market Kalshi showed a similar shift. Health care led last month's gains with 17,000 positions, followed by construction at 11,000 and manufacturing at 9,000. Financial activities kept shrinking, losing 7,000 jobs for the month and 129,000 since a May 2025 peak. July's figure was cut by 31,000 and August's by 29,000, from +162,000 to +133,000, a combined 60,000 reduction.[S2]
Realtor.com senior economist Jake Krimmel described the September figures as a clear miss that largely continues patterns seen in recent years. Because layoffs remain subdued and jobless claims are declining, he expects the low-hire, low-fire environment to persist into 2027. Krimmel added that this report probably won't heavily influence the Fed's fall rate decisions. He stressed that even with sluggish September hiring, unemployment is still low, so there is no labor crisis that would divert the FOMC's attention from inflation.[S2]
Mortgage Rates and Housing Affordability Pressure Persist
Under Chairman Kevin Warsh, the central bank is focused on reining in supply-side inflation stemming from geopolitical turmoil and costlier energy. The weak employment report makes a pause in October look still more probable. Even so, most observers expect another increase before year-end, meaning the forces that drove the 10-year Treasury to a 24-year high and lifted Freddie Mac's mortgage rate from 6.66% in early September to 7.28% this week remain in place.[S2]
Krimmel says households and housing are being pinched from both directions, with a labor market that remains sluggish and financing conditions that keep tightening. A 62 basis point jump in mortgage rates within one month translates into roughly $19,000 less home on a $2,000 monthly principal-and-interest budget. That hit to affordability shows up in September's housing figures, with pending sales…[S2]
