Traders now see little chance of a Fed rate hike in October after weak jobs report. The Federal Reserve looks likely to leave interest rates unchanged when it meets next month, according to traders who bet on the outcome. After a September jobs report that badly undershot expectations, the odds of a hike in October have collapsed.
FedWatch, which tracks trading in 30-day interest rate futures, currently shows only a 17% chance that the Fed raises rates by a quarter percentage point in October. That is down from odds of close to 36% just one week ago. On prediction market platform Kalshi, the odds sit at just 18%, down from nearly 70% a week ago. The decline reflects how quickly traders respond to new data, and the September employment figures provided the catalyst.
The jobs report that changed everything
September’s employment numbers landed far south of what economists expected. The economy added only 29,000 jobs, a fraction of the estimated gain of more than 80,000. Economists had forecast a much larger expansion, and the actual figure fell well short of that mark.
The weak print matters because the Fed’s decisions rest on two competing pressures. The central bank wants to ensure full employment, which means workers can find jobs without needing to bid wages upward. But it also wants to keep prices stable, and inflation has remained above its target for five years running.
“This report strengthens the case for the Federal Reserve to remain patient.”
The quote comes from Adam Schickling, a senior economist at Vanguard. He argued that the labor market has not worsened sharply, but neither has it improved meaningfully. That leaves policymakers with little reason to act now and plenty of reason to wait for more data.
What the inflation figures show
The jobs report was not the only number that traders watched. The personal consumption expenditures price index, the Fed’s preferred measure of inflation, came out mid-week, and it showed cooler-than-expected prices.
Core prices, which exclude food and energy, rose 3% in August. That was lighter than consensus estimates, which had called for a rise of 3.3%. The lower reading added to the case for patience among traders, since it suggested inflation was cooling rather than accelerating.
The combination of a weak jobs report and cooler inflation readings has pushed traders toward the same conclusion: the Fed has less urgency to raise rates again this month.
Traders still expect a December hike
Even as traders cut the odds of a hike in October to near zero, they remain convinced the central bank will move in December. On FedWatch, odds for a December rate increase sit above 75%. On Kalshi, the odds are 65%.
That suggests traders see the current pause as temporary. The markets expect another move before the end of the year.
Why the odds moved so quickly
The shift in trader expectations happened fast. Just one week ago, odds of an October hike were close to 36% on FedWatch and nearly 70% on Kalshi. Now those numbers sit in the low teens and low double digits.
The speed of the adjustment reflects how closely traders watch each new economic figure. A single jobs report that misses expectations by a wide margin can reshape the entire picture within days.
What the Fed faces in October
The Federal Reserve is scheduled to announce its next decision on interest rates at the conclusion of a two-day policy meeting on Oct. 28. That will be the moment the market learns whether the odds were right or wrong.
The central bank has a delicate balance to strike. If it raises rates again in October, it risks slowing an economy that already appears weak. If it holds steady, it risks letting inflation run hotter than it should.
Schickling’s point about patience captures the tension. The labor market has not deteriorated sharply, but it has not strengthened meaningfully either. That gives policymakers reason to wait for additional data before committing to another hike.
The path ahead
The coming weeks will test whether the Fed’s caution holds. Here is what traders are watching:
- The October jobs report, due early next month
- Further inflation data, including the next reading on core prices
- Any fresh signs of wage pressure or rising costs
Each of those numbers could push the odds back toward a hike or confirm the current expectation of a pause.
The bottom line
Traders now see little chance of a Fed rate hike in October after weak jobs report. The odds have collapsed from near certainty to a remote possibility, and the market expects the central bank to wait until December before moving again.
Whether that proves correct will depend on what the October jobs report shows when it lands.
The question now is whether the Fed follows the traders or breaks with them. Either way, October 28 will provide the answer.
Source material: “Traders now see little chance of a Fed rate hike in October after weak jobs report,” CNBC.
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