Federal Reserve Interest Rate Hike Odds Drop Following Weak Employment Data
- Investors view October interest rate increase by the Federal Reserve as unlikely, with current odds at 17%.
- Only 29,000 jobs were added in September, falling well short of expectations.
- Predictions for a potential rate hike in December maintain a 75% probability according to FedWatch.
Investors now believe that the Federal Reserve is unlikely to raise interest rates in October, buoyed by a weaker-than-expected September employment report. According to CME’s FedWatch tool, which analyzes trading in 30-day interest rate futures, there is currently only a 17% chance of a 25 basis-point rate increase, a significant drop from 36% just one week prior. Similarly, on prediction market platform Kalshi, the likelihood of an October hike is at 18%, sharply down from nearly 70% a week earlier.
The U.S. economy added just 29,000 jobs in September, markedly below the projected gain of over 80,000. This softening labor market may prompt the Federal Reserve to reconsider how it balances its dual mandate of ensuring full employment and maintaining steady prices, especially following its recent interest rate hike in September aimed at curbing persistent inflation.
Adding to the Federal Reserve’s deliberations, the personal consumption expenditures price index—a key inflation measure—reported more muted inflation figures. Core prices, which exclude food and energy, rose by 3% in August, falling short of forecasts that had anticipated a 3.3% increase. Adam Schickling, a senior economist at Vanguard, noted, “This report strengthens the case for the Federal Reserve to remain patient. The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data.”
While traders largely discount the possibility of an October rate hike, they still anticipate that the Federal Reserve may raise rates in December. Current odds on FedWatch indicate a greater than 75% chance for such a move, while Kalshi suggests a 65% likelihood.
The Federal Reserve is scheduled to announce its next interest rate decision on October 28, following a two-day policy meeting.
News Courtesy of CNBC
