Key Takeaways

The probability of a Federal Reserve rate hike in October fell to 17% following the latest U.S. nonfarm payrolls report.

Traders now price an 83% probability that the Fed will keep rates unchanged, up from 72% before the jobs data.

October rate hike odds dropped sharply from 28% to 17% as signs of a cooling U.S. labor market strengthened.

Futures markets now price approximately 22.2 basis points of cumulative Fed tightening by the end of 2026, down from 25.5 basis points before the report.

Expectations for another Federal Reserve interest rate hike in October declined sharply after the latest U.S. employment report reinforced signs that the labor market is losing momentum.

According to CME Group's FedWatch tool, traders now assign an 83% probability that the Federal Reserve will leave interest rates unchanged at its October meeting.

That compares with 72% before the nonfarm payrolls report was released.

At the same time, the probability of a 25-basis-point rate hike dropped from 28% to 17%.

Fed Rate Hike Odds Drop After NFP

The shift in expectations followed weaker U.S. employment data that pointed to further cooling in the labor market.

September nonfarm payrolls increased by only 29,000, while the unemployment rate rose to 4.2%. Employment estimates for July and August were also revised lower by a combined 60,000 jobs.

The softer labor market data reduced expectations that the Fed will need to tighten monetary policy again immediately.

Markets had already been reassessing the outlook for U.S. interest rates, but the latest NFP report accelerated that shift.

83% Chance Fed Holds Rates in October

Fed funds futures now indicate that keeping rates unchanged is the market's dominant expectation for the October meeting.

Before the employment report, traders assigned a 72% probability to no change and a 28% probability to a rate hike.

Following the data, those probabilities shifted to 83% and 17%, respectively.

The repricing suggests traders increasingly expect the Fed to wait for additional inflation and economic data before deciding whether further tightening is necessary.

Markets Reduce Expectations for Further Fed Tightening

Expectations for interest rates beyond the October meeting also declined.

Federal funds rate futures now price approximately 22.2 basis points of cumulative rate increases by the end of 2026, compared with 25.5 basis points before the employment data.

The change indicates that traders are not only reducing expectations for an October move but also slightly lowering the amount of additional tightening expected over the remainder of the year.

The outlook could continue to shift as investors assess incoming inflation, employment and economic growth data.

For risk assets including Bitcoin and U.S. equities, the declining probability of near-term Fed tightening could provide a more supportive liquidity backdrop, although persistent inflation could still influence the central bank's next policy decisions.