Goldilocks Jobs Report Gives Fed Cover to Hold Rates in October

Markets are increasingly confident that the Federal Reserve will hold interest rates steady in October, with the odds of no change rising to 76.2%, up from 29.1% just a week ago, according to CME FedWatch data. This shift comes after a September jobs report that showed weaker-than-expected payroll growth of 29,000 jobs and a slight uptick in the unemployment rate to 4.2%. Jeremy Siegel, professor emeritus of finance at the Wharton School, described the report as a “Goldilocks” scenario, providing Fed Chair Kevin Warsh with the cover to maintain the current rate level ahead of the midterm elections.

Siegel explained that while the headline numbers were weak, the underlying data still showed strength in the job market. He suggested that Warsh would be reluctant to raise rates so close to the elections, which are scheduled for early November. The Fed had previously raised rates by 25 basis points in September, bringing the target range to 3.75% to 4.00%. Despite the recent rise in bond yields, Siegel believes the stock market can continue to gain if oil prices remain below $90 a barrel, even if geopolitical tensions escalate.

The stock market has held up well despite rising yields, with the SPDR S&P 500 ETF (SPY) up 0.07% overnight, and retail sentiment in the ‘extremely bullish’ territory. The Invesco QQQ Trust (QQQ) and the SPDR Dow Jones Industrial Average ETF Trust (DIA) also saw gains of 0.14% and 0.04%, respectively. Year to date, SPY has risen 14.5%, QQQ has surged over 23%, and DIA has climbed nearly 8%. Siegel anticipates bond yields may trend around 5% for the rest of the year, citing increased economic growth expectations worldwide.