In the September US employment report released on the 2nd, the increase in nonfarm payrolls came in at 29,000 from the previous month, far below the expected 90,000 gain, and the unemployment rate also worsened to 4.2%, its first deterioration in seven months. However, the rise in the unemployment rate is seen as driven by an increase in people willing to work, and the average pace of gains over the past three months has held at about 50,000, so the dominant view is that the employment situation remains on a stable footing. Combined with the weak content and remarks by Fed Vice Chair Jefferson calling for cautious policy adjustment, expectations that the Fed will proceed with an additional rate hike at its meeting on the 27th and 28th of this month have receded, and the probability of a hike in the interest rate futures market has fallen from 70% at one point to 20% recently. Meanwhile, the surge in crude oil prices due to the US-Iran conflict pushed August inflation to 3.4%, far above the Fed's 2% target, and Cleveland Fed President Hammack stated plainly that "the concern is precisely inflation." In judging whether to raise rates further, the Fed plans to place weight on inflation indicators released going forward.
Weak September payrolls (29k vs 90k expected) and Fed Vice Chair Jefferson's cautious remarks cut rate-hike odds from 70% to 20%, pushing the expected fed funds rate lower.
Receding Fed rate-hike expectations on the soft jobs report lower the 10-year Treasury yield, though the oil-driven 3.4% inflation print tempers the decline.
