US job growth slows to 29,000 in September as rate hike expectations fade

September payrolls fall short of forecasts

The United States economy added a seasonally adjusted 29,000 nonfarm payroll jobs in September 2026, falling below consensus forecasts of 90,000 and missing every estimate collected in Bloomberg's survey. Data released by the Bureau of Labor Statistics included downward revisions to the previous two months, lowering August job additions to 133,000 from 162,000 and revising July to a net reduction of 10,000 positions. Together, the revisions eliminated 60,000 previously reported jobs. Private sector employment grew by 46,000 in September against projections of 85,000, after August private hiring was revised down from 127,000 to 89,000. Job growth averaged approximately 50,000 positions monthly in the third quarter of 2026, down from monthly gains of around 200,000 recorded across 2023–2024.

Unemployment and wage growth indicators

The national unemployment rate edged up to 4.2% in September from 4.1% in August, matching expectations of labor market cooling as more individuals actively sought work. The jobless rate remains below the 4.4% recorded one year earlier, though higher than the 3.5% low seen in mid-2022. Average hourly earnings increased by 0.1% month-over-month and 3.0% year-over-year, trailing expectations of 0.3% and 3.2% respectively and decelerating from 3.1% in August. Despite slower hiring, weekly jobless claims remained low, with one broad measure of corporate layoffs holding at a four-year low. Sector figures revealed job reductions in local government administration and in artificial intelligence-exposed fields like information services, finance, and professional business services, while AI data centre investments supported payroll gains in construction and manufacturing.

Shift in Federal Reserve rate expectations

The labor market slowdown altered expectations for the Federal Open Market Committee ahead of its rate decision on 28 October 2026. The central bank raised benchmark rates by 25 basis points in September, with officials prioritizing inflation control as the latest core PCE inflation reading held at 3.0%, above the Fed's 2.0% annual target. Following the employment release, the implied market probability of the Fed holding interest rates unchanged in October increased to 84%. Recent public statements had led financial markets to expect the central bank to postpone any further rate increase until December. Thomas Simons, chief US economist at Jefferies, assessed the policy consequences of the report.

For the Fed, this number should be the nail in the coffin for an October rate hike.

Financial market reaction and political context

Equity index futures climbed following the data release, while US Treasury yields declined, easing valuation pressure on technology companies on Wall Street. The US dollar weakened against international currencies, pushing the euro up 0.15% to 1.1255 dollars on interbank foreign exchange markets before 15:00. The September data marks the final complete monthly jobs report prior to the November Congressional elections, where consumer living costs and household spending remain central campaign issues. Bartosz Sawicki, market analyst at Exante, commented on the broader interest rate outlook across financial markets.

Not only did the US labor market disappoint in September, but the strong August NFP was revised down, as was the July reading. The data undermines the rationale for an FOMC rate hike at the October 28 meeting. The market is no longer pricing in even a full Fed move for the rest of 2026.