If you felt a small jolt of relief on Friday when stocks jumped on a weak jobs report, you were feeling something economists have a clunky name for and the rest of us just call common sense: the Federal Reserve is less likely to raise your borrowing costs when the job market is cooling. Let me walk you through exactly what changed, what did not, and what actually decides the Fed’s next move on October 28.
The setup, first. The Fed raised interest rates in September for the first time since 2023, and coming into this week traders were braced for another hike at the October 27-28 meeting. A week ago, futures markets priced the odds of an October hike at 64%, according to the CME FedWatch tool. That is a market holding its breath.
Then Friday’s report landed. The economy added just 29,000 jobs in September, against expectations of roughly 85,000. The unemployment rate ticked up to 4.2%. August was revised down to 133,000 from 162,000, and July flipped from a small gain to a 10,000-job loss. By Friday afternoon, the odds of an October hike had collapsed to 23% to 24%.
Here is the mechanism, stripped of jargon. The Fed raises rates to cool an overheating economy, the kind where too many job openings chase too few workers and wages spiral into prices. Friday’s report showed no such overheating. As the Wall Street Journal put it, the report “provided no signs that the labor market is tightening in ways that would add to price pressures,” which “removes one potential obstacle to holding interest rates steady this month.” A meaningful drop in unemployment, which Fed officials watch more closely than the monthly payroll number, could have forced Chairman Kevin Warsh and his colleagues toward a hike. Instead they got room to wait. “The likelihood of an October pause was already high, with this print nudging up those chances,” Bradford Smith of Janus Henderson Investors said.
But here is what the jobs report did not change, and this part matters more for your wallet. Bond yields are still punishingly high. The 10-year Treasury finished Friday at 5.28%, the 2-year at 4.82%, and the 30-year at 5.63%. Mortgage rates sit above 7%. Those rates are set by bond markets, not by the Fed’s overnight rate, and the bond market is worried about things the Fed cannot fix in a month: government borrowing, global debt anxiety (France’s two-year yields just hit their highest since 2008), and stubborn inflation expectations. An October pause would be a pause, not a rescue. Your mortgage quote will not suddenly get cheaper because the Fed sits on its hands for six weeks.
The bond world, interestingly, sees opportunity where borrowers see pain. Rick Rieder, BlackRock’s chief investment officer of global fixed income, wrote that “a lot is priced into the anticipation of the Fed, European Central Bank, Bank of England, and Bank of Japan rate moves from here,” adding that the front end of the U.S. curve now looks attractive and “the breakeven of rate rises relative to future returns has now moved to quite attractive levels.” Translation: if you are a saver rather than a borrower, yields this high are a gift. Money market funds, CDs, and short-term Treasuries are paying rates most of us have not seen in our adult lives.
So what actually decides October 28? Not the jobs report, or at least not only it. The September consumer price index lands on October 14, and the Journal notes it “is likely to weigh more heavily on the timing of further rate increases.” The producer price index follows on October 15. If inflation keeps cooling, the Fed can credibly pause and let the September hike do its work. If prices surprise to the upside, the hawks get their ammunition and the October meeting gets interesting again. Before any of that, Wednesday brings the minutes from the Fed’s September meeting, which will show how divided policymakers were when they voted to hike.
A practical way to think about it, the way you might think about a thermostat in a drafty house. The Fed turned the heat up in September. Friday’s jobs report told them the house is cooling on its own, so they probably will not crank it further this month. But the drafts, the bond market, global debt worries, the long tail of inflation, are still blowing through the windows, and the thermostat alone cannot seal those. For borrowers, that means no quick relief. For savers, it means the good rates stick around a while longer. For investors, it means the next two weeks, CPI on the 14th and the Fed on the 28th, are where this story actually gets written.
