October Rate Hike Odds Plummet as Jobs Report Dashes Expectations

The Federal Reserve's October interest-rate hike odds plummeted from 70% to 20% in just one week, according to CME FedWatch data. This significant shift was driven by a combination of factors, including comments from Federal Reserve officials, softer-than-expected inflation data, and a weak jobs report.

On Monday, September 28, markets were pricing a 70% probability of a 25-basis-point increase at the Fed's October 27-28 meeting. However, by Thursday, this number had fallen to around 25%. The final nail in the coffin came on Friday with the release of the September jobs report, which showed a paltry 29,000 job gain, far below the expected 90,000.

New York Fed President John Williams' comments on Tuesday were an early catalyst for this shift. He stated that 'with the policy action we took at our September meeting, there is no need for urgency, and we have time to gather more information.' This nuanced view was echoed by Fed Vice Chair Philip Jefferson, who emphasized the importance of carefully examining trends in the data.

The soft inflation data, which showed August PCE inflation increasing 0.3% month on month and 3.4% year over year, further eroded expectations for an October hike. By Friday, markets were pricing only a 13.8% chance of an increase, with some economists describing the jobs report as 'the nail in the coffin' for an October move.