Traders sharply reduced their expectation of an October Federal Reserve rate hike after the U.S. economy added just 29,000 jobs in September, far below forecasts for more than 80,000. CME’s FedWatch tool put the chance of a quarter-point increase at 17%, down from nearly 36% a week earlier. The shift eases immediate pressure on the Fed to tighten policy, though traders still expect a possible increase in December.
September hiring shifts the October outlook
The September employment gain of 29,000 fell short of estimates for more than 80,000, giving investors a clear signal that hiring had softened. A weaker labor market can reduce the urgency for policymakers to raise borrowing costs, particularly while they assess whether inflation is also cooling.
Markets had been pricing a substantially greater chance of a move earlier in the week. By the time the jobs report landed, the probability on FedWatch had fallen to 17% from close to 36% one week before. The change captures traders’ reassessment, not a decision by the Federal Reserve.
Two markets show the retreat in hike bets
A separate gauge on Kalshi put the October hike probability at 18%, down from almost 70% a week earlier. The two platforms therefore pointed in the same direction: traders saw an October increase as much less likely after the payroll figures.
The percentages differ because FedWatch derives its probabilities from trading in 30-day interest-rate futures, while Kalshi is a prediction market. Neither forecast guarantees the Fed’s next move. Together, however, they show how quickly expectations changed as investors incorporated the jobs release.
Inflation data had already eased pressure
Expectations had also moved lower after the personal consumption expenditures price index, the Federal Reserve’s preferred inflation measure, was released on Wednesday. Core prices, which exclude food and energy, rose 3% in August, below consensus estimates for a 3.3% increase.
The jobs report added labor-market weakness to that inflation signal. The Fed must weigh its dual mandate of full employment and stable prices, and slower hiring may give policymakers more reason to wait for additional evidence rather than raise rates immediately. The source material also says inflation has remained above target for five years, leaving price stability an ongoing concern.
December remains in traders’ forecasts
The reassessment is concentrated on October, not a broad expectation that rate increases are over. FedWatch showed odds above 75% for a December hike, while Kalshi put that possibility at 65%. Those figures suggest traders still see a later increase as plausible even as they discount an immediate move.
The Federal Reserve is scheduled to announce its next rate decision after a two-day policy meeting concluding on Oct. 28. Until then, the softer September payroll reading and inflation data will shape market expectations, but the available figures do not establish what policymakers will decide.
Markets respond to a less hawkish outlook
U.S. stocks rallied on Oct. 2 as the weaker jobs report reduced concerns about another rate increase this month. The Nasdaq Composite rose 1.2%, the Dow Jones Industrial Average gained 0.5% and the S&P 500 added 0.7%.
Lower expectations for near-term tightening can support shares by reducing fears of higher borrowing costs, but the move in stocks does not settle the Fed’s policy path. Investors must still reckon with the gap between October and December pricing, the 29,000 September job gain and the 3% core inflation reading for August.
Takeaway: September’s 29,000 job gain pushed October hike odds down to 17% on FedWatch, while December remains a live possibility for traders.
References
- Eurasia Business News — “Stock Market Today: Weak Jobs Report Lifts Stocks as Fed Rate-Hike Bets Fade, Nasdaq and Dow Rally”
- asia.nikkei.com — “US stocks climb after weak jobs data, but bonds resume selling – Nikkei Asia”
- benzinga.com — “10 Stocks Rally As Rate Hike Bets Fade After Weak Jobs Data – Entegris (NASDAQ:ENTG) – Benzinga”
- finance.yahoo.com — “Stock market today: Dow, S&P 500, Nasdaq rally as Fed rate-hike expectations fade, tech gains”
- NASDAQ:TSLA — “MARKETS LIVE: Wall Street closes higher as rate-hike bets fade, tech stocks gain”
