Markets closed out the week of September 28 through October 2 with a mismatch that is hard to square. The Federal Reserve hiked rates on September 16, pointing to a resilient economy and elevated inflation. Sixteen days later, the government's own jobs count told a different story.
What did the September jobs report actually show?
Nonfarm payrolls rose by just 29,000 in September, far short of the 84,000 jobs economists expected. The unemployment rate climbed to 4.2%, and the BLS cut its prior July and August counts by a combined 60,000 jobs. Private payrolls grew by 46,000 while government payrolls shrank by 17,000.
How did stocks react to the miss?
Traders read the weak print as insurance against another rate hike and bought it. The S&P 500 closed at 7,722.72, up 0.73% on Friday, while the Nasdaq jumped 1.19% to 27,190.86 as Nvidia touched an intraday record. The one-day bounce only patched over a rough week: the Dow finished down 1.3%, the S&P 500 slipped 0.3%, and the Nasdaq managed a 0.6% gain.
What happened to volatility and bond yields?
Equity vol stayed quiet. The VIX closed at 15.31, well inside its normal range, with no sign the options market is pricing a Fed misstep. Bonds told a different story. The 10-year Treasury yield sat at 5.27%, near its highest level since the current hiking cycle began, even as the labor market showed cracks.
Why did the Fed hike into a weakening labor market?
The FOMC voted 12-0 on September 16 to raise the federal funds target range a quarter point to 3.75%-4%, citing solid growth, robust capital investment, and inflation still running above the 2% goal. Three weeks later, the jobs data undercut the "resilient economy" half of that case, without a single data point arriving in between to soften the landing.
Who is actually running the Fed right now?
It is not Jerome Powell. Kevin Warsh took over as chair in May 2026 when Powell's term as chair ended; Powell stayed on the Board of Governors through at least January 2028. Warsh signed off on September's hike. He is also the one who will have to explain an October pause if the committee reverses course this month.
What does this set up for the next Fed meeting?
The FOMC next meets October 27-28, and rate futures markets are now pricing roughly a 74% probability the committee holds rather than hiking again. That is a sharp shift from the confidence behind September's unanimous vote. A hold would be the first pause since this hiking cycle began, and it rests on one soft payrolls print surviving three more weeks without a worse inflation surprise.
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