September Jobs Report Weakens Fed Rate Hike Odds

The U.S. labor market experienced a significant slowdown in September, adding only 29,000 new jobs and pushing the unemployment rate up to 4.2%. This figure, released by the Bureau of Labor Statistics on Friday, represents a substantial decrease from the previous month's surge and falls considerably short of economists' expectations, which had anticipated job growth closer to three times that number. The weaker-than-expected performance in job creation suggests a potential setback for the economic recovery as the fall season begins.

This subdued employment report has diminished the likelihood of the Federal Reserve implementing another interest rate hike at its upcoming Federal Open Market Committee (FOMC) meeting scheduled for October 27-28. Following the release of the jobs data, the CME FedWatch tool indicated an 85% probability that the federal funds rate would remain unchanged within its current range of 3.75%-4%, an increase from 75% the day prior. The prediction marketplace Kalshi also reflected this trend. Key sectors contributing to job growth in September included health care, which added 17,000 positions, followed by construction with 11,000 new jobs, and manufacturing with 9,000. In contrast, the financial activities sector saw a decline, shedding 7,000 jobs and marking a decrease of 129,000 jobs since its recent peak in May 2025.

Further analysis of the data revealed downward revisions to previous months' figures. July's job gains were revised down by 31,000, and August's figures were also adjusted downward by 29,000, reducing the previously reported August increase from 162,000 to 133,000. Cumulatively, these revisions account for 60,000 fewer payroll jobs reported over July and August than initially stated. Realtor.com® senior economist Jake Krimmel characterized the September numbers as a "clear miss" but noted that they largely align with ongoing market trends. He anticipates that the "low hire, low fire market" is likely to persist into 2027, as layoffs have not increased and jobless claims have been declining.

Krimmel also commented on the potential impact of this report on the Federal Reserve's monetary policy decisions. He stated that the tepid September job growth, despite the overall low unemployment rate, is unlikely to divert the FOMC's primary focus from combating inflation. According to Krimmel, the September jobs report does not present a "labor disaster" that would significantly alter the Fed's considerations regarding interest rate adjustments in the current quarter.