October Fed Hike Bets Shrink as US Adds Just 29,000 Jobs

The US economy added just 29,000 jobs in September, against forecasts for more than 80,000, sending traders’ expectations for an October Federal Reserve rate increase sharply lower. According to CNBC Economy (direct), markets now put the chance of a hike this month at less than one in five. The hiring shortfall gives policymakers another reason to weigh the strength of employment against their continuing effort to bring inflation under control.

CME’s FedWatch tool, which draws its estimates from trading in 30-day interest rate futures—contracts tied to expectations for short-term rates—puts the probability of a quarter-percentage-point increase at 17%. That compares with nearly 36% a week earlier. The change marks a substantial retreat in expectations for another increase immediately after the central bank raised rates at its September meeting.

The shift was even larger on Kalshi, a prediction market where participants trade on the outcomes of events. Its implied probability of an October hike dropped to 18%, from almost 70% a week before. The two platforms therefore tell a similar story about October, despite starting from very different readings a week earlier. CNBC disclosed that it has a commercial relationship with Kalshi involving customer acquisition and a minority investment.

Two signals favor waiting

Employment was not the only report pushing expectations lower. Earlier in the week, Wednesday’s release of the personal consumption expenditures price index—the Fed’s preferred inflation measure—also weakened the case for an October increase. Core prices, which leave out food and energy, rose 3% in August. Economists had expected 3.3%, making the reading softer than anticipated.

For the Fed, the challenge is how to balance its two goals: full employment and stable prices. Inflation has stayed above its target for five years, and the central bank increased rates in September to fight it. But weaker hiring adds another consideration. The latest jobs report and the cooler inflation reading put both sides of that balancing act in focus before the next decision.

Adam Schickling, a senior economist at Vanguard, said the employment figures support a patient approach. His assessment was that the labor market had neither weakened sharply nor shown convincing improvement. That leaves policymakers with a reason to seek more evidence rather than act immediately.

The latest jobs figures give the Fed stronger grounds to wait for more data, in the assessment of Vanguard senior economist Adam Schickling.

December remains in play

Traders are not treating a likely October pause as the end of rate increases. FedWatch still shows a probability above 75% for a December hike, while Kalshi puts that chance at 65%. Those readings contrast sharply with October’s much lower probabilities: expectations for another increase remain, but are concentrated on the later month.

The next point to watch is the Fed’s rate announcement at the end of its two-day policy meeting on Oct. 28. Policymakers will have to weigh the softer employment and inflation figures against the persistence of above-target prices. For now, market pricing favors waiting in October while keeping December firmly in view.