Weak Jobs Report Shifts Fed Rate Hike Expectations
Wall Street expected another rate hike from the Federal Reserve in October, but a disappointing jobs report on October 2 shifted expectations dramatically. The Bureau of Labor Statistics revealed that U.S. employers added only 29,000 jobs in September, far below the projected 84,000. The unemployment rate also rose to 4.2%, signaling potential weakness in the labor market. This report came just two weeks after Federal Reserve Chair Kevin Warsh led a unanimous 12-0 vote to raise the federal funds rate by a quarter point to a range of 3.75% to 4%.
The market reaction was swift. The odds of an October rate hike dropped from around 70% to roughly 14%, while the probability of the Fed holding steady at its October 27-28 meeting surged to about 83%. Gold prices jumped over 1%, trading around $4,223 an ounce, and Bitcoin briefly climbed above $87,000, with the total crypto market cap reaching $3 trillion. These moves suggested traders were betting on a Fed that might pause its tightening campaign.
Warsh had justified the September hike by citing three key factors: economic strengthening, persistent inflation, and escalating geopolitical tensions. However, the September jobs report challenged this narrative, as the weak employment numbers contradicted the idea of an economy gaining strength. Warsh now faces the difficult task of determining whether September’s data was an anomaly or the start of a broader slowdown, especially given the lingering data gaps from the 2025 government shutdown.
The Fed is still dealing with the fallout from the 43-day government shutdown in 2025, which delayed critical labor market data. The October 2025 jobs report was canceled, and its data was folded into November’s report, which was released in December. This gap complicates the Fed’s ability to assess current trends accurately. Warsh must navigate both the political and statistical challenges ahead of the October meeting, where holding steady may be the most prudent course of action.