Two big prints from the past two weeks point in opposite directions. The labor market added almost nothing. Inflation re-accelerated. The Fed meets October 27-28 with both numbers on its desk, and the market is split on whether to hike again.
What did the September jobs report show?
Employers added 29,000 jobs in September, against roughly 90,000 expected. July and August were revised down by a combined 60,000, and July now shows a loss of 10,000. The unemployment rate was 4.2%, up from 4.1%.
Look at the unrounded figure. The rate moved from 4.141% to 4.175%, a drift of about 3 basis points. The headline "rise" is mostly rounding. The real story is that hiring stalled, not that layoffs started. Weekly jobless claims last printed 197,000, which is not a layoff wave.
What did September CPI show?
Consumer prices rose 3.7% from a year earlier, above the 3.6% consensus and up from 3.4% in August. Core CPI, which strips out food and energy, rose 2.6% against 2.5% expected. Gasoline jumped 9.1% in the month and is up 34.2% from a year ago, and it accounted for more than half of the monthly increase.
That makes this an energy shock with a core re-acceleration behind it, not a broad overheating. Shelter, used cars and airfares (up 22.4% year over year) are the core contributors.
Where does that leave the Fed?
The Fed's target range is 3.75% to 4.00% after September's hike, the first since 2023. Before the CPI report, the market priced about a 20% chance of another quarter-point hike on October 28. Afterward, CME FedWatch readings put it near 44%, and other outlets cited 45% to 50%. Sources differ, so treat the exact number as a range.
The two-year Treasury yield sat near 4.79% on Thursday morning, according to the Treasury yield curve data, roughly 80 basis points above the top of the funds range. The bond market is pricing more tightening into a month where payrolls barely grew.
Why does the jobs and inflation mix matter for workers?
Average hourly earnings rose 0.1% in September and are up 3.0% from a year ago. With CPI at 3.7%, that is real earnings down roughly 0.7 percentage points. Hiring is weak, wages trail prices, and gasoline is the swing factor.
This is the hardest setup for a central bank. Hiking into 29K payrolls risks tipping a stalled hiring market into job losses. Standing pat with CPI at 3.7% risks letting an energy shock leak into core. Neither side of that trade has clean data.
What is on the calendar next?
Three releases land at 8:30 AM ET today: producer prices, retail sales and weekly jobless claims. A claims number well above the recent 197,000 range would turn the hiring stall into a firing story. A hot PPI would add to the energy-cost pass-through argument. The FOMC decision comes October 28 at 2:00 PM ET, with the press conference at 2:30 PM ET.
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