Strong October jobs report lifts bets that the Fed raises rates again this year

Bets that the Federal Reserve will raise interest rates again before the end of 2026 rebounded Friday after the Labor Department reported that employers added 165,000 jobs in October, well above the 65,000 economists expected. Unemployment edged down to 4.1%. Traders now see another hike as likely, after a sharp drop a day earlier.

The jobs report is not a rate decision, but the stronger labor market gives the Fed more room to raise rates to fight inflation, according to the Labor Department's Bureau of Labor Statistics and Axios. The rebound was a solid jump of several points, and it came as the report was released in the morning. It recovered most of what was lost the day before.

The odds had moved in both directions this week. They climbed steadily from Monday through Wednesday, then fell sharply on Thursday. Reuters reported Thursday that investors had scaled back expectations for further tightening amid a tech-stock selloff. On Friday morning, before the jobs data, the bets had recovered only partway, and they jumped when the report arrived.

The question covers only hikes that come after the Fed's September 16 meeting. That meeting raised the target range to 3.75% to 4%, the Fed's first increase in more than three years, and it does not count. Only a hike that takes effect from September 17 through the Fed's December meeting would qualify. That includes an emergency move or one announced at the December meeting.

On October 28, the Fed held the range steady by a 10-2 vote. Governors Lisa Cook and Beth Hammack preferred another quarter-point increase. Hammack and Richmond Fed President Thomas Barkin have since favored a gradual path of rate increases to lower inflation, Reuters reported.

The October report reverses a softer picture of the labor market. The September report initially showed only 29,000 jobs added and unemployment at 4.2%, which raised concerns about weakness. The new report also included upward revisions to August and September.

The Fed's next scheduled meeting is December 8-9, with a policy decision and economic projections due at its conclusion. Officials will weigh incoming inflation and employment data before then. A hold in December would not satisfy the question unless a qualifying hike had already occurred.