US jobs report cools Fed rate hike bets: Why October CPI and record diesel prices now matter

The US jobs report for September came in much weaker than expected, changing market expectations for the Federal Reserve’s October meeting. The US economy added only 29,000 jobs in September, far below economists’ expectation of 90,000 jobs.

US jobs report, inflation and record diesel prices put pressure on the Fed rate outlook. (AFP)The unemployment rate also increased to 4.2%. The weak jobs number suggests that the US labour market is cooling rather than overheating. Investors welcomed the report because a weaker labour market means the Fed has less immediate pressure to raise interest rates. The S&P 500 gained on Friday after the report, although it still ended the week roughly where it had started.

The September report was a sharp change from the stronger labour-market performance seen in August. BNP Paribas US economists Andrew Husby and James Egelhof said the report was not necessarily bad, but it was clearly not strong. They said the broader US job market is still moving in a positive direction, but hiring is gradually becoming weaker.

The economists described the current labour market as a “low hire, low fire” environment, meaning companies are not hiring many workers but are also not firing large numbers of employees. Average hourly earnings increased only 0.1% from August. Wages were up 3% from a year earlier, which is likely below the current inflation rate. This means wage growth is not creating strong new pressure on inflation.

The weaker jobs report has reduced expectations for an interest-rate hike at the Fed’s October meeting. The market now sees only about a 20% chance of a 25-basis-point rate hike at the October Federal Open Market Committee meeting, according to CME data.

The report gives the Fed more room to wait because the labour market is no longer showing signs of overheating. Husby and Egelhof said the economy and hiring can still remain healthy without the Fed having an urgent need to raise rates. In simple terms, the jobs report makes an October rate hike less likely.

The next major inflation reading will be US CPI data on October 14. Economists expect CPI to play a bigger role than the jobs report in deciding what the Fed does next. This is because the labour market is still relatively healthy, while inflation remains a major concern. So, October CPI could decide whether the Fed keeps rates unchanged or considers another hike.

JPMorgan chief US economist Michael Feroli said it would take a very strong CPI report to make the October Fed meeting a serious rate-hike meeting. Feroli still expects another rate hike in December, assuming September and October inflation data show that core inflation remains sticky. The key issue for investors is therefore no longer just jobs. Inflation is now in the driver’s seat.

The Fed has two main goals: keeping prices stable and supporting maximum employment. Rick Rieder, BlackRock’s chief investment officer of global fixed income, said employment is currently the weaker part of the Fed’s data compared with inflation. However, he warned that this situation may not last forever. The Fed will continue watching both the labour market and inflation in the coming months. This means a weak jobs report does not permanently remove the possibility of future rate hikes.

US consumer spending has mostly remained strong in recent months. A strong stock market has helped increase household wealth and supported spending. But Americans are becoming increasingly unhappy about the economy. The Conference Board said consumer confidence fell sharply in September.

Its consumer confidence index dropped to 81.9 from 88.6 in August. The September reading was the lowest since 2014. Economists had expected the index to rise to around 89, making the actual result a major disappointment.

Dana Peterson, chief economist at The Conference Board, said consumers were mostly pessimistic about the economy in their written responses. Consumers increasingly mentioned high prices, expensive goods and services, and oil and gas prices.

These concerns show that Americans are feeling the impact of higher living costs even though the economy and spending remain relatively strong. This creates a mixed picture for investors and policymakers. On one side, people are still spending, jobs are still being added and the economy is still growing. On the other side, consumer confidence is falling because people feel the cost of living is too high.

The next important consumer-confidence reading comes from the University of Michigan on Friday. The previous University of Michigan reading showed sentiment falling to levels even worse than during the 2008 financial crisis.

Economists expect sentiment to weaken again. The headline sentiment index is expected to fall to 48, from 48.1 previously. During the 2008 financial crisis, the index was generally around 55 to 60. A further fall would show that Americans are becoming even more pessimistic about the economy. The data will be closely watched by investors, the Fed and the White House.

The weak consumer mood creates a difficult situation heading toward the US midterm elections. Americans are still spending and the economy is still growing, but many households do not feel financially comfortable. Affordability is expected to be a major issue for voters.

Rising prices for goods, services, oil and gas are adding to that pressure. This means economic data can matter not only for the Fed and markets, but also for the political debate around the midterms.

The global energy market has been under major pressure during the seven-month Iran war. Crude oil exports from the Persian Gulf have started to recover. Persian Gulf crude exports are now around 98% of their pre-war levels, according to JPMorgan Chase. But refined fuel exports have recovered much more slowly.

Exports of diesel, gasoline and other refined products are around 3 million barrels per day, only about 58% of pre-war levels, according to JPMorgan Chase. This gap between recovering crude supplies and weak refined-product supplies is putting heavy pressure on fuel prices.

The biggest concern is now diesel rather than crude oil alone. US diesel prices reached an all-time high of $6.41 per gallon on Wednesday, according to AAA. Diesel prices have also increased in Europe. High diesel prices matter because diesel is used heavily by trucks, transport companies, agriculture and other parts of the economy. Higher diesel costs can therefore spread through the economy by making it more expensive to move goods and operate businesses. That can eventually add to prices paid by consumers.

G7 leaders announced on Friday that they would release 100 million barrels of crude oil and diesel into the market over four months. The move is designed to reduce pressure on global energy markets.

The plan includes a substantial diesel release within 20 days, according to the G7 statement. The release is being led by G7 countries and their partners. The aim is to increase available fuel supplies and help bring down pressure on prices.

The G7 announcement came after several days of pressure from the Trump White House. The US administration had pushed European countries to release oil products from their national reserves.

The White House had threatened a US diesel export ban if European countries did not agree to release fuel from their own stockpiles. The emergency release is therefore an attempt to address the shortage of refined fuel and reduce pressure on diesel prices.

Record diesel prices could become an important inflation problem even if crude oil exports continue recovering. Diesel directly affects transportation and the cost of moving goods. Higher transportation costs can eventually feed into the prices Americans pay for products and services.

That makes diesel prices especially important for the inflation outlook. If diesel prices stay extremely high, they could make the upcoming October CPI report more important for the Fed. Investors should therefore closely watch both CPI and diesel prices as they assess the next Fed move.

The weak jobs report is pushing markets toward the view that the Fed can wait in October. Sticky inflation, however, could keep the possibility of future rate hikes alive. Falling consumer confidence is another warning sign for the economy.

At the same time, strong stock-market performance has helped support household wealth and spending. This leaves investors with a mixed economic picture: cooler jobs, stubborn inflation risks, weaker consumer confidence and high energy costs.

The economic calendar is relatively lighter after the major jobs report, leaving more room for company news and other developments to move markets. Constellation Brands reports earnings on Tuesday. Applied Digital, a data-centre operator, reports on Wednesday and could provide another indication of how strong the AI-related investment trade remains.

PepsiCo reports earnings on Thursday, giving investors another look at the food and beverage business. The University of Michigan consumer sentiment report on Friday is expected to attract major attention.

The September jobs report has made an October Fed rate hike much less likely. But the Fed's decision is not settled yet. The biggest test now is October 14 CPI. A very strong inflation report could bring the October rate-hike debate back.

A softer CPI reading would give the Fed more reason to remain on hold. Meanwhile, record diesel prices could add fresh inflation pressure and make the CPI data even more important. In short, weak jobs have cooled rate-hike bets, but inflation — especially energy-related inflation — remains the key risk.

Durva More is a Senior Content Producer at Hindustan Times, where she covers finance, and global news. She brings experience across digital and television journalism, with a strong focus on breaking news, business reporting, and international affairs. Before joining Hindustan Times, Durva worked as an International News Writer at The Economic Times, covering a diverse range of subjects including global politics, business, sports, entertainment, and major world events. She also worked as a Business Reporter with NDTV Profit. A postgraduate diploma holder in Journalism from the Asian College of Journalism, Durva is passionate about field reporting and storytelling. She thrives on the adrenaline of chasing stories, speaking with people from different walks of life, and amplifying voices that deserve to be heard. Her reporting is driven by curiosity, accuracy, and a commitment to making complex subjects accessible to readers. When she is not chasing stories or covering breaking news, Durva enjoys reading books and painting. She loves exploring new ideas, meeting people, and learning about different perspectives. For her, both journalism and art are ways to understand the world and tell stories that matter.Read More