Traders now see little chance of a Fed rate hike in October after weak jobs report

Investors now think the odds are extremely unlikely that the Federal Reserve raises interest rates again in October, following a weaker-than-expected September employment report .

CME's FedWatch tool, based on trading in 30-day interest rate futures, shows only a 17% chance that the Fed increases rates by a quarter percentage point. One week ago, odds were close to 36%. On prediction market platform Kalshi, chances for a hike in October stood at just 18%, down from almost 70% a week ago.

The U.S. economy added only 29,000 jobs in September, below estimates for a gain of more than 80,000. A softer labor market could recalibrate the Fed's thinking in how it balances its dual mandate to ensure full employment and steady prices, after it raised interest rates at its September meeting to combat inflation that's remained above target for five years .

Odds for a hike in October also fell in the middle of this week after the release of the personal consumption expenditures price index , the Fed's preferred inflation gauge, on Wednesday showed cooler-than-expected prices. Core prices, excluding food and energy, rose 3% in August, lighter than consensus estimates for a rise of 3.3%.

"This report strengthens the case for the Federal Reserve to remain patient," said Adam Schickling, a senior economist at Vanguard. "The labor market has not deteriorated sharply, but there is also little evidence that it has meaningfully strengthened, giving policymakers reason to wait for additional data."

While traders now think a hike in October is unlikely, they're still forecasting that the central bank will raise rates in December.

On FedWatch, odds are above 75% for a hike in December, while on Kalshi there are 65% odds that the Fed raises rates.

The Federal Reserve is set to announce its next decision on interest rates at the conclusion of a two-day policy meeting on Oct. 28.