Three weeks after lifting its benchmark rate to a range of 3.75%–4.00%, the Federal Reserve looks all but certain to sit out its October 27–28 meeting. The reason arrived last Friday, when the Bureau of Labor Statistics reported that U.S. employers added just 29,000 jobs in September — less than a third of what economists had expected — while the unemployment rate ticked up to 4.2%. Within days, market-implied odds of a back-to-back rate hike collapsed from roughly 70% to below 20%.
The report that changed the odds
The headline miss was only part of the story. The BLS also revised the prior two months down by a combined 60,000 jobs: July was rewritten from a gain of 21,000 to an outright loss of 10,000, and August from 162,000 to 133,000. September’s gain came in well below the 12-month average of about 45,000 new jobs a month, and the move in the unemployment rate pushed it above the Fed’s own 4.1% projection for the end of 2026.
Wage pressure, meanwhile, cooled rather than quickened. Average hourly earnings rose just 0.1% in September to $37.81 — well short of the 0.3% economists expected — and are up 3.0% from a year earlier, below the 3.2% consensus. The sector detail was mixed but unexciting: health care added 17,000 jobs, construction 11,000 and manufacturing 9,000, while financial activities shed 7,000 and has now lost 129,000 jobs since its May 2025 peak.
The tables below compile the key figures behind the repricing — the data set that flipped the Fed’s October calculus.
Table 1: September payroll report, at a glance
Compiled by Macrometer from Bureau of Labor Statistics data released October 2, 2026.
| Indicator | September | August | Consensus expectation |
|---|---|---|---|
| Nonfarm payrolls | +29,000 | +133,000 (rev. from +162,000) | ~+85,000–90,000 |
| Unemployment rate | 4.2% | 4.1% | 4.1% |
| July payrolls (revised) | −10,000 | — | +21,000 (first est.) |
| Avg. hourly earnings (m/m) | +0.1% ($37.81) | +0.3% | +0.3% |
| Avg. hourly earnings (y/y) | +3.0% | +3.1% | +3.2% |
| 12-month avg. payroll gain | ~45,000/month | — | — |
From 70% to under 20%: how October pricing collapsed
Two weeks ago, traders were convinced the Fed would follow its September rate increase with another in October. In the fortnight after the September 16 decision, futures pricing put the odds of a second consecutive increase at roughly 70%. Then the repricing began.
Table 2: Market-implied odds of an October 25bp hike
Compiled by Macrometer from futures pricing and prediction-market data.
| When | Implied probability | Source |
|---|---|---|
| Mid-September, after the Fed hike | ~70% | interest-rate futures |
| Sept 30, after the PCE report | 34.9% | CME FedWatch |
| Oct 2, after the jobs report | <20% | interest-rate futures |
| Oct 5–6 | 18% (Kalshi) / 16.5¢ (Polymarket) | prediction markets |
Note: different gauges measure slightly different things — CME FedWatch reads futures contracts, while Polymarket and Kalshi trade discrete outcomes — but the direction is unmistakable.
The first leg down came from inflation data. The August PCE report — the Fed’s preferred inflation gauge — showed headline inflation at 3.4% and core at 3.0%, below expectations, and the government’s annual revision cut July’s core reading from 3.3% to 3.0%. The inflation case for an October hike was already weakening before the jobs report landed.
The second leg was the labor data itself, and Fed officials helped seal it. New York Fed President John Williams said he saw “no urgency” to follow September’s increase, and Vice Chair Philip Jefferson signaled the Fed would take more time before moving again — a joint message Evercore ISI analysts called “authoritative.” Even Minneapolis Fed President Neel Kashkari, among the most hawkish voices on the committee this year, told Reuters he was “open-minded” about the timing of the next move.
The case for patience — and the case for December
The dovish case is straightforward: the labor market is cooling faster than the Fed expected, wage growth is decelerating rather than accelerating, and the unemployment rate has already overshot the central bank’s own year-end projection. Fed Chair Kevin Warsh said last month that unemployment was “running consistent with full employment” — a signal that the employment side of the dual mandate is not flashing red.
The hawkish case, however, is far from dead — it has simply been deferred to December. Inflation remains the dominant problem: PCE inflation has run above the Fed’s 2% target for more than five years, and the September dot plot showed a median projection of 4.1% for the federal funds rate at year-end — implying one more quarter-point move from here. BMO economist Sal Guatieri noted that 51% of PCE price components are still rising faster than 3% a year, “providing little reason to think that the underlying trend in inflation has improved meaningfully.” Futures markets agree: traders still price a nearly 90% chance of a hike by the December 8–9 meeting, according to the Fed’s own meeting calendar, even as equity indexes hover near record highs.
What to watch next
The October decision is not entirely settled. The Fed’s quiet period begins Saturday, October 17, leaving roughly a 72-hour window in which a hot September CPI report — due Wednesday, October 14 — could put October back in play. If CPI disappoints the doves, the Fed goes silent for the final 11 days before the decision. The December 8–9 meeting, which comes with a fresh Summary of Economic Projections, remains the market’s base case for the next move, as Reuters reported.
For now, the message from both the data and the policymakers is the same: the Fed is in no hurry.
This article is for informational purposes only and does not constitute investment advice.
