What a Cooler-Than-Expected September Jobs Report Means for the Fed
The September jobs report was released Friday morning. Here's what the data show.
“We believe that the unemployment rate is running basically consistent with full employment,” Federal Reserve Chair Kevin Warsh said during his press conference following the September Fed meeting, citing a jobless rate of 4.1%. "So the labor side of the Fed's congressional remit is in good shape."
That was after August payrolls came in much higher than forecast. A cooler-than-expected September jobs report still suggests the employment situation is stable. At the same time, it gives the Federal Open Market Committee (FOMC) more reason to hold interest rates steady at its October 27-28 meeting.
According to the Bureau of Labor Statistics, the U.S. added 29,000 new jobs in September, well below a consensus forecast of 93,000.
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The unemployment rate, which is derived from a separate survey, took an unexpected uptick to 4.2% from 4.1%.
At the same time, job growth for July (-31,000 to -10,000) and August (-29,000 to +133,000) was revised down, resulting in a combined 60,000 fewer jobs than previously reported.
A fair-to-middling jobs report, following milder-than-forecast recent data for the Fed's preferred inflation gauge, further reduced expectations for a rate hike in October.
According to CME Group FedWatch, futures traders are now pricing in just a 16% chance the central bank will increase the federal funds rate by a quarter-percentage point when it meets later this month, down from 24% one day ago and 64.2% one week ago.
ADP jobs report was hotter than expected
Wall Street got a peek at how things are going in the labor market on Wednesday morning with the ADP National Employment Report, which showed private payrolls rose by 90,000 in September, up from 36,000 in August and above the 68,000 economists expected.
The industries seeing the largest increases in jobs were education, healthcare, and leisure and hospitality, while financial activities, professional and business services saw the biggest declines in positions.
What Wall Street has to say about the September jobs report
"September’s disappointing employment report showed renewed slowing in job growth heading into the fall, potentially foreshadowing enough moderation in economic activity to delay additional Federal Reserve interest-rate hikes. Job gains in economically sensitive industries slowed, but increased for a third straight month, remaining on the leading edge of employment gains. Job growth in health care and education, less sensitive to the economy’s ups and downs, remained more modest by comparison. Twelve-month wage inflation slipped to 3.0% (from 3.1% in August), likely adding to the pressure on real incomes and risking a slowdown from August’s brisk pace of consumer spending." - Jennifer Timmerman, Senior Investment Strategy Analyst at Wells Fargo Investment Institute
"There is zero chance for a rate hike in October now—in retrospect, September should have been a hold. Outside of energy, the inflation impulse is lower, and Fed was zigging when it should have been zagging." - Jamie Cox, Managing Partner at Harris Financial Group
"Given today’s report, it is likely that 2026 will go down as one of the weakest years for job growth outside of recessions in history. The employment picture has been murky for the entirety of 2026. The Non-Farm Payroll survey has been all over the place this year, and the August payroll report showed strong overall job gains combined with upward revisions to prior months, leading analysts to believe the labor market could be gaining momentum. However, all that momentum seems to have disappeared with this September jobs report. This greatly complicates the Fed’s decision at their next meeting. Inflation is still way too high, and Kevin Warsh doesn't have enough credibility on Wall Street to keep ignoring high inflation. I still think the Fed needs to hike at the October meeting. It's the best way to regain credibility on inflation, which in turn will help keep longer-term rates from spiraling out of control." - Tom Graff, Chief Investment Officer at Facet
"September payrolls were supported by job creation in construction, manufacturing, and healthcare. Suppressing job growth were the information, financial services, and government sectors. This illustrates the new economy. Despite the uptick in unemployment to 4.2%, the labor market is still operating in a comfortable range. As labor force growth stagnates, the breakeven rate of employment growth, which is the pace needed to keep the unemployment rate steady, has declined. Today’s payroll numbers are approaching that breakeven rate. We are seeing the tension between the goods-producing sectors that support the AI boom and the services-producing sectors that are feeling the impact of technological change. Given the overall softness of the labor market, the likelihood of two Fed hikes is getting lower." - Jeffrey Roach, Chief Economist at LPL Financial
While this month's employment report was less than expected, there is nothing to say that the labor market is not still very tight and employment demand is strong. Remember that as a result of the aging population, lower birth rates, and de-immigration policies, the breakeven rate for nonfarm payrolls has fallen dramatically, from about 125,000 just last year, to between 0 and 50,000 today. As a result, even something within this range should not be seen as weak or disappointing. The bottom line is that this is still very much a low-hire, low-fire labor market. Today's report is soft enough to calm the long end of the yield curve, but not weak enough to obviate the need for another rate increase later this year." - Richard de Chazal, Economist at William Blair
"Overall, the report was mixed, with a few sectors showing fewer jobs during the month while those showing an increase in jobs showed weak job creation. The information, financial activities, and professional and business services sectors continued to be the weakest sectors. This information is consistent with what the ISM Manufacturing PMI and ISM Services PMI Employment indices are showing, the goods-producing sector's employment prospects continue to improve while the service side of the economy continues to deteriorate. In the end, this report will probably keep the Federal Reserve from increasing rates in October and it will wait for more information to see if it has to increase rates in December." - Eugenio J. Alemán, Ph.D., Chief Economist at Raymond James
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