Fed Rate Hike in October Looks Less Likely After Weak Jobs Report

Coming off an unexpected surge in August, the U.S. labor market stumbled in September, adding just 29,000 new jobs as the unemployment rate edged up to 4.2%. 

According to the latest report from the Bureau of Labor Statistics, released Friday, economic recovery suffered a setback at the start of fall, with nonfarm payrolls growing by only about a third of economist expectations.

These weaker-than-anticipated job numbers make it less likely that the Federal Reserve would opt for another interest rate hike when the Federal Open Market Committee (FOMC) meets on Oct. 27-28.

Just minutes after the release, CME FedWatch showed odds rising to 85% that the federal funds rate will hold steady at its current 3.75%-4% range, up from 75% a day ago. The trend was echoed by the prediction marketplace Kalshi.

Work sectors that saw the strongest growth last month included health care, which added 17,000 new jobs, along with construction (+11,000 jobs), and manufacturing (+9,000).

Meanwhile, financial activities employment continued to lag, shedding 7,000 jobs over the month and 129,000 since a recent peak in May 2025.  

July was revised down by 31,000 jobs, and the change for August was revised down by 29,000, from +162,000 to +133,000, adding up to 60,000 fewer payrolls than previously reported across the two months.

Realtor.com® senior economist Jake Krimmel says that while the September numbers are a "clear miss," they mostly extend trends that have defined the market in recent years.

"Layoffs haven’t picked up, and jobless claims have been falling, so the low hire, low fire market is likely to stay entrenched as we head into 2027," says Krimmel.

What will the Federal Reserve do?

For the Fed, the economist maintains that this latest print is unlikely to have a major impact on decision making around rate hikes this fall.

"Despite tepid September job growth, unemployment remains low, so in short, this is no labor disaster that would pull the FOMC’s focus off inflation," notes Krimmel.

The central bank, headed by Chairman Kevin Warsh, is intent on containing supply-driven inflation from geopolitical instability and higher energy prices. After the soft jobs report, a hold looks even more likely for October.

However, the consensus remains that another hike will be coming before the end of the year, whch means that the pressure that sent the 10-year Treasury to a 24-year high and pushed Freddie Mac’s mortgage rate from 6.66% at the beginning to September to 7.28% this week has not gone away. 

What this means for homebuyers

For consumers and the housing market, Krimmel says the squeeze continues at both ends, with a still- sluggish labor market on one side and financial conditions getting tougher on the other.

The 62 basis point increase in mortgage rates in a span of a single month works out to about $19,000 less house on a $2,000 per month budget for principal and interest.

That blow to housing affordability is reflected in September's housing data, with pending sales down 4.1% year over year, the largest drop since March 2025, and 20.8% of listings seeing a price cut, the highest single month of price cuts in nearly four years.

"With a rather static jobs picture likely to persist this fall, buyers and sellers should not plan on a particularly dynamic housing market in the near term either," warns Krimmel.