One More Hike This Year, or Did September Finish It?

The Federal Reserve raised interest rates in September for the first time since 2023, and it told the market to expect one more before the year is out. Then the September jobs report landed. The question reopened. Does the Fed still have another hike in it, or did last month’s move mark the end of the line? Two inflation readings this week, on Wednesday and Thursday, begin to answer it.

The dots and the futures both point to December

When policymakers lifted the target range to 3.75% to 4.00% in September, the vote was unanimous, 12 to 0. The projections released alongside it put the median policy rate at about 4.1% by year-end, which pencils in one more quarter-point step. Chair Kevin Warsh framed the move as removing accommodation rather than tightening, and called inflation elevated. The statement also described economic activity as expanding at a solid pace, a backdrop the committee reads as able to absorb another step.

Futures markets have taken the hint. Pricing tracked by CME FedWatch and other monitors puts the odds of a December increase near 75% to 79%, and some of that pricing extends the tightening into early 2027. The inflation data has not argued against it. Forecasters expect Wednesday’s September report to show headline prices up about 3.7% from a year earlier, lifted from 3.4%, with record gasoline prices in the month doing much of the work; core inflation is seen holding close to 2.4%. Every major gauge still runs above the Fed’s 2% target. One policymaker went further this week. Austan Goolsbee of the Chicago Fed told Semafor that AI-linked spending is pushing inflation into unrelated corners of the economy, “jumping out of its lane,” and said that if inflation stays persistent, the Fed’s course is clear.

Then hiring nearly stopped

The case on the other side is the economy itself. Employers added just 29,000 jobs in September, against forecasts closer to 84,000, and the Labor Department revised the prior two months down by a combined 60,000. The unemployment rate edged up to 4.2%. Private payrolls grew 46,000 while governments cut 17,000. A labor market creating jobs at that pace is not one that needs cooling. This was only the Fed’s first hike of the cycle, and the hiring figures suggest the economy is already slowing without more pressure from policy.

The market reacted fast. Before the report, traders had priced the odds of an October hike near 70%. After it, those odds fell to about 17%, where they sit now, with the next decision due October 28. The near-term call is a hold. That leaves the December hike resting on a single assumption: that inflation stays hot enough to override a slowing jobs market. Soften this week’s prints and the assumption weakens. Policymakers themselves are split, and Warsh has declined to commit to a path, saying he is not in the forward-guidance business.

What the data shows

Markets are not bracing for a fight. The S&P 500 closed Monday at 7,796, within a fraction of a percent of its record, and the VIX sat at 15.25, a reading that signals calm. The 10-year Treasury yield, which touched a 24-year high near 5.3% at the start of the month, has eased to 5.22%. Beneath the index, the sector tape leans defensive and price-aware: energy led Monday, up 1.4%, with consumer staples close behind at 1.2%, while the broad financials group rose a milder 0.6%. That mix fits a market keeping one eye on prices and one on the Fed.

What would settle it

The calendar is front-loaded. The September Consumer Price Index arrives Wednesday morning, followed by the Producer Price Index on Thursday. Together they are the last broad inflation readings before the Fed meets, and a hot pair would hand the hawks their argument, while a soft pair would strengthen the case for standing still. The rate-setting committee announces its next decision October 28. Its final meeting of the year, in December, is where markets expect the increase the September projections implied. Between here and there, every payroll and price release moves the odds.

September settled one question and opened another. The Fed has shown it will raise rates while inflation runs above target. Whether a labor market adding 29,000 jobs a month leaves it room to do so again is what this week’s data begins to test.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.