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The US economy added just 29,000 jobs in September, missing expectations and raising doubts over labor market resilience as unemployment rose to 4.2%, fueling debate over Federal Reserve rate hikes.
WASHINGTON — The US economy added just 29,000 jobs in September, a sharp slowdown in hiring that raised doubts over the resilience of the labor market and prompted traders to rein in bets on further interest rate increases by the Federal Reserve.
The figure from the Bureau of Labor Statistics, released Friday, marked an abrupt reversal from the downwardly revised 133,000 jobs added in August and fell well short of the 88,000 job gains anticipated in a Bloomberg poll of economists.
Hiring decelerated across multiple sectors, with healthcare, a big driver of job gains in previous months, slowing sharply. Employment in the financial sector continued to contract.
Payroll Revisions and Unemployment Rate
Payrolls for July and August were revised lower by a combined 60,000 positions. The July figure fell to a loss of 10,000 jobs.
The unemployment rate climbed to 4.2 per cent in September from 4.1 per cent in August.
Jeff Schulze, head investment strategist at Franklin Templeton, said the soft payroll report demonstrates that the labor market is simmering, not boiling.
Impact on Federal Reserve Rate Expectations
The data came as the Fed weighs whether to raise interest rates further to tackle inflation after officials voted last month to increase borrowing costs for the first time in three years.
Treasury yields dropped following the report as traders lowered their expectations of additional rate increases. Traders in the futures market were no longer fully pricing in a full rate rise by the end of the year.
Adam Schickling, senior economist at Vanguard, said the report strengthens the case for the Federal Reserve to remain patient, adding that the labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened.
The two-year Treasury yield, which moves with interest rate expectations, fell as much as 0.09 percentage points to 4.69 per cent. It later retraced some of that move to sit at 4.75 per cent.
Expectations of a rate increase by December 2026, which had previously been fully priced in, fell to about 75 per cent.
Market bets on an October rate rise fell from 29 per cent before the data was released to 20 per cent. They had already fallen sharply this week after senior Fed officials signaled that policymakers would probably need more time to consider the data before taking further action.
Thomas Simons, chief US economist at Jefferies, said that for the Fed, this number should be the nail in the coffin for an October hike.
Market Reaction and Fed's Next Moves
US stocks opened higher on Friday, with the S&P 500 up 0.9 per cent and the Nasdaq rising 1.2 per cent to a record high.
Fed chairman Kevin Warsh had pointed to the labor market being in good shape as a factor behind the central bank's decision to raise borrowing costs by 25 basis points in the face of inflation, which he said had been too high for too long.
Traders said that while Friday's report should cause the central bank to re-evaluate that position, they still expected the Fed to raise borrowing costs further in the coming months.
Gennadiy Goldberg, head of US interest rates at TD Securities, said that overall the data pour a little bit of cold water on the narrative that rates should be running dramatically higher.
– Copyright The Financial Times Limited 2026
US Jobs Report Federal Reserve Interest Rates Unemployment Rate Labor Market Bureau Of Labor Statistics Treasury Yields
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