Fed likely to not cut rates in December following delayed September data, according to market odds

Odds of December Rate Cut Remain Low Despite Jobs Data

Following the release of delayed jobs data, the likelihood of a December rate cut by the Federal Reserve remains low. The CME FedWatch Tool currently indicates a 35% chance of a quarter-point cut next month, slightly higher than the previous session’s 30% probability. Despite the increase, market expectations for a rate cut remain weak, with the current target rate standing at 3.75% to 4.00%.

September Jobs Report Reveals Mixed Signals

The September jobs report, the first nonfarm payrolls report post-government shutdown, presented a mixed picture of the U.S. labor market. While the economy added 119,000 jobs in September, exceeding expectations, the unemployment rate unexpectedly rose to 4.4% from 4.3%, reaching its highest level since October 2021.

Former Federal Reserve Vice Chairman Roger Ferguson commented on the report, stating, “All those numbers suggest an economy that’s still hanging in there. Not a dramatic move one way or the other.” Despite the uptick in unemployment, indicators like labor force participation and average hourly earnings remain strong.

Potential for December Rate Cut

Although the weak unemployment rate may signal a need for a December rate cut, some investors remain cautious. Kay Haigh, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management, mentioned that a December cut is still possible due to ongoing labor market softness and close-to-target inflation.

Haigh emphasized the importance of Fed Chair Jerome Powell’s risk-management approach to the labor market, especially as his term expires in May. The decision on a rate cut will likely be influenced by a combination of weak economic data and inflation levels.