U.S. Federal Reserve Chairman Jerome Powell during a press conference after the Federal Open Market Committee (FOMC) on Wednesday, October 29, 2025 in Washington, DC, USA.
Al Drago | Bloomberg | Getty Images
The probability of an interest rate cut in December remains low due to the delay in the release of employment data.
Markets last priced in about a 35% chance that the Federal Reserve would cut interest rates by a quarter of a percentage point next month, according to the CME FedWatch tool. This is higher than the 30% probability priced in in the previous session, but still weak. The tool used federal funds futures contracts to calculate the odds.
The target interest rate is currently 3.75-4.00%.
Those expectations remained strong after the release of the September jobs report, the first non-farm payrolls investors have seen since the government shutdown. The report revealed an uneven picture of the U.S. labor market. The U.S. economy added 119,000 jobs in September, according to a Dow Jones survey of economists, a headline number that blew away expectations for a 50,000-job gain.
However, the unemployment rate showed unexpected weakness, rising from 4.3% to 4.4%. This new level is the highest since October 2021.
“All these numbers suggest that the economy is still stagnant. It’s not a dramatic move either way,” former Federal Reserve Vice Chairman Roger Ferguson said Thursday on CNBC’s “Squawk Box.” “People should be mindful of the slight increase in the unemployment rate, but the labor force participation rate still looks pretty strong, and the average hourly wage certainly looks good, or good enough. So I don’t think this sort of thing will tip the downsizing decision too much in either direction.”
Indeed, some investors are hopeful that the drop in the unemployment rate means a rate cut in December will remain on the table. Fed policymakers are watching this level more than the headline number, but it’s even more troubling given that tightened immigration enforcement will shrink the workforce and theoretically keep the job market tighter.
“A December rate cut remains a possibility given the continued weakness in the labor market as reflected in the unemployment rate,” said Kay Haig, global co-head of fixed income and liquidity solutions at Goldman Sachs Asset Management. “Despite recent hawkish voices, weak hard data and near-target inflation are likely to drive policy going forward.”
Mr Haig continued: “Mr Powell is poised to continue his risk management approach to the labor market until his term as chairman ends in May.”
