Weaker US Jobs Data Shifts Fed Rate Hike Expectations

Weaker-than-expected US September payrolls and slower wage growth have shifted expectations for the Federal Reserve’s rate hike plans. UOB’s Alvin Liew notes that the softer labor market data has reduced confidence in near-term tightening, particularly for an October rate increase. According to Bloomberg’s World Interest Rate Probabilities (WIRP), the probability of a Fed rate hike at the October FOMC meeting dropped below 20% as of October 5th, down from 64% on September 25th. Despite this, markets still anticipate a rate hike by the end of 2026.

UOB has ruled out back-to-back rate hikes in October, partly due to the proximity of the midterm elections on November 3rd. The firm expects two additional rate hikes, in December 2026 and the first quarter of 2027, before a prolonged hold through the rest of 2027. The unexpectedly weak September Non-Farm Payrolls (NFP) report has significantly lowered the likelihood of an October rate hike, but the September Consumer Price Index (CPI) report, scheduled for October 14th, will be the next critical test.