Traders scale back expectations of Fed rate rise in October after weak jobs data

Expectations that the Federal Reserve will raise interest rates at its October meeting have fallen sharply, after a weaker-than-expected jobs report pointed to a cooling U.S. labor market.

Traders in futures markets, who track the probability of different Federal Reserve policy outcomes, moved to price in a lower likelihood of a rate increase this month following the release of the latest employment data. The report showed signs of softening in the labor market, which investors read as reducing the urgency for the central bank to tighten monetary policy further.

What it means for borrowing costs

The Federal Reserve's interest rate decisions influence the cost of borrowing across the economy, from mortgages and auto loans to corporate credit. When traders anticipate a rate increase, borrowing costs often rise in advance; when those expectations fade, as they did following this report, rates on various forms of credit can ease as well.

A weaker jobs report typically signals slower hiring or rising unemployment, both of which can prompt the Fed to take a more cautious approach to raising rates, out of concern about tipping the economy into a sharper slowdown. Fed officials have repeatedly said they will weigh incoming economic data, including employment figures and inflation readings, as they chart their policy path in the months ahead.

Markets will continue to monitor forthcoming economic indicators, including inflation data and further labor market reports, for additional signals about the central bank's next move. Any significant shift in those figures could again alter trader expectations ahead of the Fed's upcoming policy meeting.