From the Desk - Economic Commentary
Scott Goedken, Institutional Strategies Director - 10/02/2026
U.S. equity markets are higher this morning and Treasury yields have moved lower following a weaker-than-expected September employment report. The decline in yields has partially reversed Thursday's sharp selloff, which pushed the 10-year Treasury yield to its highest level in more than two decades. Fed funds futures now imply roughly a 24% probability of an October rate increase, down from approximately 64% one week ago.
Nonfarm payroll employment increased 29,000 in September, well below expectations for a gain of 90,000 and down from August's revised increase of 133,000. August payrolls were revised lower from 162,000, while July was revised to a decline of 10,000 jobs from a previously reported gain of 21,000. Combined, payrolls for the prior two months were revised lower by 60,000 jobs. The unemployment rate increased to 4.2% from 4.1%, compared to expectations for an unchanged reading. The unemployment rate remains within the narrow 4.1% to 4.3% range that has prevailed since March. Average hourly earnings increased 3.0% from a year ago, down from 3.1% in August and marking the slowest pace of annual wage growth since 2021. Wage growth has continued to moderate, consistent with this month's softer payroll gains and downward revisions to prior employment estimates.
The combination of slower payroll growth, a higher unemployment rate, moderating wage gains, and downward revisions to prior months points to a labor market that continues to cool. For financial markets, the report reduces the urgency for additional Federal Reserve tightening and helps explain this morning's decline in Treasury yields and the sharp reduction in expectations for an October rate increase.
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