Fed hike odds for October 28 have fallen to 18.3% after soft jobs and inflation data, CME's FedWatch tool shows, representing a dramatic shift from previous expectations. This represents a significant decline from FedWatch's hike odds of 37.6% on September 30, highlighting the impact of recent economic developments. The October 28 meeting remains the next key test for Federal Reserve policy, with CME FedWatch putting hike odds near 38%, down from almost 71% a week earlier. The September meeting minutes showed most Federal Open Market Committee participants saw another 2026 hike as likely appropriate, creating additional pressure for the Fed to maintain its restrictive policy stance. The US central bank last month raised its overnight benchmark interest rate by 25 basis points to the 3.75%-4.00% range, the first hike in three years, and flagged further increases in borrowing costs in the months ahead.
Weekly unemployment claims fell to 197,000 for the week ended October 3, below economists' expectations of 200,000, according to the latest Labor Department report. This marks the fourth consecutive week that claims have remained near 57-year lows, despite disappointing nonfarm payroll growth of just 29,000 jobs in September. The four-week moving average of claims fell to 198,000, the lowest level since early October 2022, showing continued labor market stability. California and Illinois were the only states to report an increase in unadjusted applications in excess of 1,000, highlighting regional variations in job market conditions. Continuing claims, a proxy for the number of people receiving ongoing unemployment benefits, rose by 17,000 to 1.716 million in the week ended September 26, while the median duration of unemployment stood at 11.5 weeks in September, near a four-and-a-half-year high. The data point to a low-hiring, low-firing labour market, with workers facing greater difficulty finding new jobs despite limited layoffs, as reported by Reuters.
Federal Reserve officials judged that labor market conditions were stable and generally viewed the labor market as close to maximum employment in their September 15-16 policy meeting minutes published Wednesday. The minutes noted that policymakers generally viewed the upside and downside risks to the labor market as broadly balanced. However, economists expect the Fed to raise rates in December following the underwhelming September payroll gains and cooler-than-expected inflation readings for July and August. The median duration of unemployment was 11.5 weeks in September, near a 4-1/2-year high, while the unemployment rate remained at 4.2% last month. Economists have blamed the trend of employers hoarding workers against the backdrop of strong profit growth and stock market performance for making it harder for those who lose their jobs to find new opportunities. "It's still a 'low-hire, low-fire' job market," said Heather Long, chief economist at Navy Federal Credit Union, noting it's great for those with jobs but tough for job seekers.
The core Personal Consumption Expenditures (PCE) price index, the Fed's preferred gauge, rose 0.2% in August, below forecasts, according to CME's FedWatch tool. This softer inflation reading has complicated the timing of future rate decisions, with August personal consumption expenditures inflation rising 3.4% year-over-year, below the 3.7% estimate in economist polls. This softer inflation reading has shifted market expectations, with Goldman Sachs and several other brokerages shifting their expected next 25-basis-point hike from October toward December following the August PCE data. The US economy expanded at an annualized rate of 2.2% in Q2 2026, revised up by 0.7 percentage point from the 2nd estimate, following an upwardly revised 2.5% growth in Q1. The ISM Manufacturing PMI edged down to 54.5 in September 2026 from 54.6 in August, compared to forecasts of 55, but the reading continued to point to robust growth in the manufacturing sector.
Bitcoin jumped within minutes of the weak jobs report, burning about $27.5 million in short positions in an hour, according to CoinGlass data. The cryptocurrency's reaction highlights the market's sensitivity to Federal Reserve policy signals. A hold could remove one threat to the Bitcoin price, though the hike has only moved to December, where Goldman Sachs now expects it. The 10-year Treasury yield touched 5.342% on October 1, its highest since early 2002, adding pressure to the market environment. Fed Vice Chair Philip Jefferson and New York Fed President John Williams also signaled no rush to act again, reinforcing the dovish sentiment. However, energy costs add pressure with oil climbing about 14% in the month to September 29, to above $96 a barrel, creating additional inflationary concerns. The October 14 inflation data may outweigh the October 28 decision itself, making the upcoming data release crucial for determining the Fed's next policy move. The resilient labour market could complicate the Federal Reserve's policy decisions as it balances employment conditions against inflation, with investors assessing whether labour market stability will support economic growth or keep interest rates elevated for longer.
