Jobs Report in Focus as Fed Signals More Rate Cuts

by Christine Short of Wall Street Horizon, 10/1/25

Takeaways

  • All eyes are on the upcoming September jobs report, scheduled for release on Friday, October 3, which follows a much weaker-than-expected reading for August

  • The Federal Reserve is signaling a pivot towards addressing labor market softness, with markets now pricing in a high probability of interest rate cuts in both October and December

  • The report arrives amidst a debate over whether the US is facing a labor supply or demand issue, a situation complicated by corporate layoffs, talent shortages, and shifting immigration policies

The latest read on the US labor market will be out this Friday, October 3, when the Bureau of Labor Statistics releases September nonfarm payrolls, unemployment, average hourly earnings and other metrics. August NFPs came in softer than expected at 22,000 (vs. the Dow Jones forecast for 75,000) and likely pushed the September 17 interest rate cut over the finish line. That same report saw unemployment tick up to 4.3%, the highest rate in over a year. Wage growth ticked up 0.3% for the month, but the annual gain of 3.7% was lower than the 3.8% expectation. All of these results will be in focus come Friday, as well as the broader measure of unemployment that includes discouraged and underemployed workers, a metric that grew to 8.1% in August, the highest level since October 2021.1

US monthly change in Nonfarm Payrolls

Leading into that report, we got Initial Jobless claims on Thursday for the week ended September 20. That reading actually fell to 218,000, down 14,000 from the prior week’s upwardly revised figure, and significantly less than the estimate for 235,000.2

Fed Focuses on Jobs

The US jobs picture has also become more of a focus for the Federal Reserve. With their attention mostly turned towards combating sticky inflation in the wake of the COVID-19 pandemic, it’s clear that addressing the current labor risk through monetary policy is also becoming important to the central bank. During his annual speech at Jackson Hole on August 20, Fed Chairman Jay Powell noted that while the US labor market remains resilient, those risks are creeping up, as are the risks of tariff inflation.3

Since that address, the Federal Reserve did lower interest rates by 25 bps at their September meeting.4 In comments after that rate cut, as well as at a talk in Providence Rhode Island last Tuesday the 23rd, Powell spoke about how recent labor-market softness now outweighs setbacks on inflation. At the latter event, Powell even called the Fed’s rate stance “still modestly restrictive,” implying there will be further rate cuts this year. He also commented on the challenges the Fed is up against in its mandate to both keep inflation low while supporting healthy labor markets.5

Currently, the CME Group’s FedWatch tool has an 88% probability of a 25 bp cut at their October 29 meeting, and a 65% chance of another one at the December 10 FOMC meeting.6