Weak Jobs Report Dents October Fed Hike Odds

Stocks and Treasury bonds rose almost at once when the September employment figures hit the tape on Friday morning, October 2, 2026. The Labor Department’s Bureau of Labor Statistics reported that the U.S. economy had added 29,000 jobs the month before, well short of the consensus range that had clustered between 80,000 and 90,000.

“This was a miss that will take pressure off the Fed and the bond market,” said Alpert, executive chairman at Westwood Capital. “Equities rallying on bad news = good news.”

The early bid did not hold cleanly through the day. Investing.com later noted that the enthusiasm faded: stocks pared gains and yields rose again as the session wore on. On X, the Kobeissi Letter flagged “insane volatility” in the bond market as traders moved. Rogier Quaedvlieg of ABN Amro struck a cooler note. “The September labour market report was somewhat weaker than we expected, although its qualitative picture broadly matched our expectations.”

July and August payrolls were revised down by a combined 60,000. The cut turned July into a net loss of 10,000 jobs.

The unemployment rate rose to 4.2 percent from 4.1 percent. Average hourly earnings increased 0.1 percent month over month. Annual wage growth slowed to 3.0 percent, the slowest pace since May 2021. The labor force expanded by 485,000, lifting the participation rate to 61.8 percent from 61.6 percent. The higher jobless rate tracked that inflow: people on the sidelines resumed looking for work.

“The unemployment rate rose to 4.2%, largely because the participation rate increased by 0.2pp,” Quaedvlieg said. “One notable figure was the modest 0.1% m/m increase in average hourly earnings, which lowered the y/y rate to 3.0%.” The three-month average payroll gain stood at 51,000. Michael Feroli, chief U.S. economist at JPMorgan, read the 51,000 figure as near trend monthly growth in the labor supply — breakeven job growth. Wage growth had been decelerating, and the latest 0.1 percent monthly rise continued that trend; Feroli said the slowdown should give comfort that the economy is not overheating. “This is good for the inflationary outlook, but potentially negative real earnings growth could weigh on consumption,” Quaedvlieg added.

“For the Fed, this number should be the nail in the coffin for an October hike,” Thomas Simons, chief U.S. economist at Jefferies, said in a note.

“The three-month average of 51k is solid given labour supply, but it does not indicate a hot or tight market,” Quaedvlieg said. “This report, especially alongside the downside surprise in the PCE report earlier this week, removes the pressure on the Fed to hike in October.”

Futures and prediction markets moved the same morning. CME FedWatch odds of an October hike fell to 17 percent on CNBC’s reading, 18.3 percent on Seeking Alpha’s, and 22 percent in an Investing.com roundup—from 36 percent a week earlier by CNBC’s count, 24.4 percent on Seeking Alpha, and as high as about 75 percent in the tallies tracked by KuCoin and the Kobeissi Letter. Hold, or “no change,” probabilities rose to 82.8 percent, 78 percent, and 83 percent across those feeds. On Kalshi, October hike odds dropped to 18 percent from almost 70 percent a week prior. Polymarket’s “Fed Decision in October?” contract saw the hike probability slide from the high-70s to 17 percent, with “no change” climbing to 83 percent. Volume on that contract alone hit $23,129,674.

A television station broadcast Federal Reserve Chairman Kevin Warsh speaking after the September 16, 2026 meeting of the Federal Open Market Committee, the Getty/Bloomberg frame circulating with Friday’s coverage. That session raised the benchmark rate by 25 basis points. It was the Fed’s first increase in three years.

The central bank balances a dual mandate of maximum employment and stable prices near 2 percent. The FOMC pursues both by setting the target for the federal funds rate. Midweek, before the payrolls release, the path toward another October move had already cooled. The personal consumption expenditures price index, the Fed’s preferred inflation gauge, showed core prices excluding food and energy up 3 percent in August, short of the 3.3 percent expected. October hike odds began to slip on that reading alone.

Minneapolis Fed President Neel Kashkari held firm on a hawkish outlook even after the cooler August inflation numbers. Officials had indicated another increase could still be warranted before year-end if inflationary pressures remained elevated, particularly amid the Iran war and other supply shocks. Those energy and supply pressures still argued against any claim that prices were under control.

Michael Brenning, chief operating officer at eLend, said rapid swings in Treasury yields were forcing lenders to reprice loans multiple times a day, adding complexity to rate locks, margins, and borrower affordability. The 10-year yield, the benchmark lenders use to price home loans, fell about 6 basis points to 5.176 percent in early trading Friday after touching its highest level since 2002 earlier in the week. Freddie Mac put the 30-year fixed-rate mortgage at 7.28 percent, up from 7.03 percent a week earlier. It was the highest level in nearly three years.

“With inflation still too high, the Federal Reserve is unlikely to cut rates anytime soon,” said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association. “However, these data showing a softer job market may be enough to keep the Fed on hold at their October meeting. Wage growth continues to run below the pace of inflation, which will hamper consumer spending over time.”

Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, saw limited room on the other side. “Mortgage rates could see slight relief after brutal rises over the past month. That's because the job market will not exert upward inflationary pressure and oil prices have retreated somewhat. The latest job report shows 29,000 net new jobs in September, indicating the economy is not nearing a recession but also not overheating.”

Sam Williamson, senior economist at First American Financial Corporation, stated the trade-off directly. “September's softer hiring may offer home buyers some much-needed relief on mortgage rates, but that relief comes with a catch. Lower borrowing costs improve purchasing power, while slower hiring limits the confidence and life events that drive home sales. That combination can steady the housing market, though it's unlikely to spark a broad rebound for the time being.”

“We still expect persistent inflationary pressure from the energy shock to prompt one more Fed hike in December, for reasons similar to those in September: to prevent pass-through to consumer prices and wages,” Rogier Quaedvlieg said. Futures and prediction markets leaned that way. CME FedWatch put December hike odds above 75 percent. On Kalshi the probability stood at 65 percent.

Michael Feroli of JPMorgan said it would now take a very strong CPI to make the October meeting live. He continued to look for another hike at the December FOMC meeting, on the assumption that the September and October price reports show still-sticky trends in core inflation. The September consumer price index is due October 14. That release is the one that could still make the October gathering live.

The Federal Open Market Committee meets over two days, October 27 and 28, 2026. The next rate decision is announced when the meeting closes on October 28.