Fed likely to not cut rates in December following delayed September data, according to market odds

Markets place only a modest probability on a December Fed cut—about 35% per the CME FedWatch Tool, up from 30%—with the target funds rate at 3.75%-4.00% and expectations largely unchanged after delayed September jobs data. The report, the first nonfarm payrolls release since the shutdown, showed a stronger-than-expected gain of 119,000 jobs (consensus 50,000) but an unexpected rise in the unemployment rate to 4.4% from 4.3%, the highest since October 2021, creating an uneven picture of the labor market. Analysts say the mixed signals—solid participation and wage growth but a tick up in unemployment and otherwise soft data—leave a December cut possible but uncertain, and reinforce a cautious, risk-management stance for Fed Chair Powell through the end of his term.

Analysis

Markets currently price a modest 35% probability of a quarter-point Fed cut in December, up from 30% the prior session, according to the CME FedWatch Tool, with the target federal funds rate sitting at 3.75%–4.00%. The delayed September nonfarm payrolls report showed an upside surprise of 119,000 jobs versus a 50,000 consensus, but the unemployment rate rose to 4.4% from 4.3%, the highest level since October 2021, creating a mixed data set.

The data produce offsetting signals: participation and average hourly earnings remain described as “strong,” per former Fed vice chair Roger Ferguson, while the uptick in unemployment and other softer hard data are cited by Goldman Sachs Asset Management as evidence that a December cut remains possible but not assured. Commentators emphasize a data-dependent, risk-management posture from Chair Powell through his term, suggesting the Fed will weigh labor-market nuances more than headline payrolls.

Investment implication is that odds of easing have increased modestly but remain low, limiting scope for sustained market repricing; fixed-income and rate-sensitive assets should expect only tentative relief absent further softening. Key near-term risks to monitor are renewed upside inflation or persistent employment strength that would reduce cut odds, versus broadening labor weakness that would increase them.

Key Decisions for Investors

• Maintain neutral-to-defensive duration positioning in core fixed income given only a modest (≈35%) chance of a December cut and a fed funds range of 3.75%–4.00%,
• Favor short-duration, high-quality instruments and cash-like allocations to capture carry while preserving flexibility to lengthen duration if incoming data materially raise cut probabilities,
• Use explicit data-driven triggers—monitor the unemployment rate, labor-force participation, average hourly earnings, and Fed communications—to scale rate-sensitive exposure ahead of the December meeting,
• Avoid large directional bets on a December cut; if expressing a view, prefer sized option structures or hedges around FOMC windows to limit downside from a surprise hawkish outcome