Key facts
- September job growth slowed, unemployment rose to 4.2%, and wage gains were muted.
- Investors now see an 83% probability the Fed will hold rates steady in October.
- The odds of the Fed keeping rates unchanged through year-end rose to 25%.
- The 10-year US Treasury yield fell to 5.17% before recovering to 5.26%.
- The 2-year Treasury yield dropped to 4.72% before drifting higher.
- The S&P 500, Dow Jones Industrial Average, and Nasdaq 100 all rose on Friday.
Investors have scaled back expectations for a Federal Reserve interest rate hike at the upcoming October meeting following a softer-than-expected September jobs report. The report showed slower job growth, a rise in the unemployment rate, and muted wage gains, reinforcing the view that the labor market is cooling.
Officials at the Federal Reserve have coalesced over the past week around a clear message: They can afford to take their time before further interest rate increases. September’s jobs report from the Bureau of Labor Statistics on Friday added credence to that view. Monthly jobs growth slowed, the unemployment rate ticked up, and wage gains remained muted, signs the labor market is far from overheating.
Combined with news from the Group of 7 summit that nations would release 100 million barrels of emergency crude oil and diesel to ease surging fuel prices, U.S. government bond yields fell and stocks rose. After the G7 news, global oil dropped below $100 a barrel.
These updates capped a busy week. On Tuesday, John C. Williams, president of the Federal Reserve Bank of New York, said there was “no need for urgency.” Philip N. Jefferson, the Fed vice chair, said assessing timing “may take more time.” On Thursday, Michelle W. Bowman, vice chair for supervision, also called for more time, adding, “I don’t currently see an urgent need for further action.”
What will factor into further increases is the evolution of U.S. government bond yields. Lorie D. Logan, president of the Dallas Fed, said higher longer-term yields can potentially offset what the central bank needs to do in terms of rate increases. Still, she said the Fed would likely need to raise rates by another half percentage point to ensure enough restraint on economic activity.
Markets were in bad news is good news mode on Friday after a softer-than-expected September jobs report. The economy added 29,000 jobs, badly missing expectations for around 90,000 jobs added, while the unemployment rate unexpectedly ticked up from 4.1% to 4.2%. A softer job market suggests the central bank might not have room to rush to raise rates, which is good for risk-asset prices.
Combined with a benign personal consumption expenditures reading on Wednesday, the latest jobs data has led traders to swiftly reprice rate expectations, with bond yields dropping sharply on Friday while US stocks rallied. Markets are now pricing in an 83% probability that the Fed will keep rates on hold at their October policy meeting, according to the CMEFedWatch tool. The odds that the Fed will keep rates unchanged through the end of the year also rose to 25%, up from 7% last week.
The benchmark 10-year US Treasury yield fell as much as 6 basis points to 5.17% as investors digested the data, before rising back up to 5.26% in the afternoon. The 2-year Treasury yield, which is most closely tied to Fed rate expectations, also dropped as much as 6 basis points to 4.72% before drifting higher.
Major stock indexes rallied, recouping some of the losses in the past week as the spike in yields spooked investors. The Dow Jones Industrial Average soared as much as 500 points before paring its gains, while the tech-heavy Nasdaq rose more than 1%, hitting a new record high. Nvidia, the AI kingmaker, also rose to a fresh all-time high, its first record in five months.