The Federal Reserve is set to announce its latest rate decision Wednesday, with its benchmark rate currently at a range of 3.75% to 4%. Most officials had signaled in September that another hike was likely this year, a stance that inflation data since has largely reinforced. However, the labor market presents a starkly different picture: job growth before the Fed’s September rate increase was the weakest preceding any of its 52 increases since 1994.
The official narrative points to persistent inflation, with the consumer price index (CPI) reaching 3.7% in September, well above the Fed’s 2% target. The central bank's own target measure, August PCE inflation, was published at 3.4% and core PCE at 3.0%, even though staff estimates had been slightly higher. Still, many officials stated that inflation “remains elevated,” and the minutes from the September meeting explicitly noted that “most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end.” Twelve of the 18 officials projected the rate would be a quarter point higher by the end of 2026. This hard line is underscored by the sentiment that the current rate is perceived as “not restrictive or only mildly restrictive,” doing little to curb spending.
Yet, a closer look at the labor market reveals a critical disconnect. Payroll growth in the year before September’s hike stood at a mere 0.34%, a figure unprecedentedly low when compared to the 51 earlier increases since 1994, where it never fell below 1.15%. September itself saw employers add only 29,000 jobs, with prior months’ data for July and August also cut by a combined 60,000. Unemployment registered at 4.2%. Moreover, average hourly earnings rose 3.0% over the year to September, falling behind the 3.7% rise in consumer prices, indicating that even employed individuals are losing purchasing power.
The central bank, however, offers an explanation for this weak jobs data, suggesting that lower immigration has “reduced the number of new jobs needed” to keep pace with the workforce. This reframing, offered by Governor Michael Barr and echoed in the September statement, implies that today's 0.34% growth might signal less slack in the labor market than an equivalent pace would have in prior years, softening the case for pausing rate hikes based solely on job numbers. Meanwhile, the Fed’s commitment to “deliver price stability” suggests a readiness to raise rates again if inflation does not recede.
The September rate hike, a quarter-point increase approved unanimously, was the first rate change under Chairman Kevin Warsh, who began chairing meetings in June. This move returned the federal funds rate to where it stood after the October 2025 cut. For borrowers, the implications are already clear: the average 30-year mortgage rate climbed to 7.32% by October 22, up from 6.95% just a day after the September hike. Despite recent inflation figures like August PCE coming in slightly below staff estimates, officials express concern less about the immediate gap to the 2% target and more about the duration of elevated inflation. The minutes highlight worries that prolonged high energy prices could lead to “broader price pressures.”
While officials like Governor Christopher Waller have noted that further increases “do not need to come at consecutive meetings,” Governor Barr emphasized that “further policy adjustments are likely to be needed” to bring inflation down. Chairman Warsh has declined to provide “forward guidance,” stating that “Trends matter. Data points are noisy.” This suggests that no single data report since September is expected to dictate the timing of future policy moves on its own, leaving the market to interpret the conflicting signals from a hawkish Fed facing weakening employment metrics. The decision arrives at 2:00 p.m. ET, with Chairman Warsh’s press conference scheduled for 2:30 p.m.
