Traders Trim Fed Rate Hike Odds After Weak September Jobs Data

U.S. employers added just 29,000 jobs in September and the unemployment rate ticked up to 4.2%, missing economists’ expectations and altering interest-rate expectations just a month before the midterm elections.

The U.S. economy created far fewer jobs than expected in September, pointing to a soft spot in the labor market as the Bureau of Labor Statistics reported Friday. Nonfarm payrolls rose a seasonally adjusted 29,000 for the month, falling well short of the roughly 85,000 to 90,000 jobs economists had anticipated. At the same time, the unemployment rate increased from 4.1% to 4.2%.

The figures arrived alongside substantial downward revisions to prior months. Initial reports for July and August were cut by a combined 60,000 jobs, with July shifting from a gain to a loss of 10,000 jobs and August revised down to 133,000. Dirk Chlench, an analyst at Landesbank Baden-Württemberg, noted that August’s previously strong figure now looks like an outlier, while it now appears that the August number was nothing more than a rebound from very weak hiring in June and July.

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Federal Reserve Rate Hike Expectations Shift After Labor Slowdown

Financial markets reacted swiftly to the weaker-than-expected data. Traders immediately trimmed expectations for a rate increase at the Federal Reserve’s policy meeting later in the month. Market-implied odds that the Fed will hold rates steady at its Oct. 27-28 meeting jumped to 82.8%, according to the CME Group’s FedWatch tool, prompting Jefferies chief U.S. economist Thomas Simons to state in a note that this number should serve as the nail in the coffin for an October hike.

Chicago Federal Reserve President Austan Goolsbee, when asked by Fox Business’ Edward Lawrence whether the Fed ought to raise rates or pause at their next meeting, remarked that there is plenty of room for anything to be on the table and described the latest jobs data as showing a steady labor market. Goolsbee added that the inflation side of the central bank’s mandate remains the core problem that must be kept under control. Meanwhile, Fed Vice Chair Philip Jefferson and New York Fed President John Williams indicated they would prefer to see more data before considering further action. JPMorgan chief U.S. economist Michael Feroli wrote that Friday’s report showing a deceleration in wage growth should give comfort to Fed policymakers that the economy is not overheating in a way that calls for a hurried rate hike cycle. Average hourly earnings increased just 0.1% in September, bringing the 12-month gain down to 3%, which marks the lowest rate in over five years.

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Stock Markets Rally and Treasury Yields Fall as Bond Prices Fluctuate

Wall Street welcomed the cooler labor data as a sign that the central bank will likely hold interest rates steady at its upcoming meeting. Stock futures rose sharply after the release, and the Dow Jones Industrial Average closed up 250.40 points at 51,176.96 on Friday, 2 October 2026, marking a daily gain of 0.49% from its previous close of 50,926.56. The tech-heavy Nasdaq also climbed, with the Nasdaq composite popping 1.2% for the day to nail down a weekly gain, driven by strong corporate results in the technology sector, including Micron Technology reporting record quarterly revenue that highlighted an ongoing artificial intelligence buildout.

However, the broader market faced headwinds from consumer-facing names. Nike shares fell 3.6% and weighed on the Dow after the sportswear company reported lower quarterly revenue and projected a high-single-digit sales decline for fiscal 2027. Meanwhile, benchmark 10-year Treasury yields experienced a volatile session, dropping to an intraday low of 5.155% in the morning before snapping back to 5.285% as oil prices recovered and inflation concerns persisted, with the yield on 10-year Treasury notes down more than five basis points overall on the day to 5.176%.

Traders Trim Fed Rate Hike Odds After Weak September Jobs Data — Photo: CNBC

Political Fallout and Economic Pressures Heading Into Midterms

The jobs report landed just one month before midterm elections that will determine control of both houses of Congress. Panelists on Fox Business debated the political implications of the slowing labor market against the backdrop of voter frustration with the cost of living. While administration defenders pointed to broader private-sector job creation and a shrinking federal bureaucracy, analysts noted that rising household expenses and mortgage rates remaining elevated near 7% continue to create economic pain points for consumers.

Gold futures also reacted to the shifting economic landscape, reversing earlier gains to drop 0.9% to a settlement of $4,133.70 per ounce as rising Treasury yields reduced the appeal of non-yielding bullion.