US September 2026 payrolls miss forecasts, treasury yields fall and Fed hike odds tumble

On Oct. 2, 2026, the U.S. Labor Department released September nonfarm payroll data showing an increase of just 29,000 jobs, far below the weakest forecast and all analyst expectations.

The miss lifted the unemployment rate to 4.2% from 4.1% and trimmed average hourly earnings growth to 0.1% month‑over‑month, pulling annual wage growth down to 3.0% from 3.1%.

Revisions to prior months amplified the surprise: July employment was cut by 31,000 and August by 29,000, leaving the combined July‑August figures 60,000 lower than previously reported.

Financial markets reacted uniformly dovishly. Treasury yields slipped across the curve, with the 10‑year rate falling to its weekly low of 5.16% and the 30‑year hitting 100% of its short‑interest capacity. Goldman Sachs’ Brian Garrett noted that managers held “extremely short global bonds” totalling roughly $390 billion, positioning the market for a potentially massive short‑squeeze.

Equities rallied, led by rate‑sensitive small‑cap stocks and long‑duration tech names, while gold rose as the dollar weakened. Crypto assets also posted gains amid the broader risk‑off shift.

On the policy front, Jefferies chief U.S. economist Tom Simons called the payroll report “the nail in the coffin” for an October Fed hike, noting that the market now prices in less than one total hike (about 22.5 basis points) for the remainder of 2026. Natixis’ Christopher Hodge added that, although the data does not alter the Fed’s inflation focus, lower wages and a softer jobs picture reduce the urgency for an October tightening.

With Fed officials Jefferson and Williams already signaling a hold stance and the upcoming midterm elections, the odds of an October rate increase have fallen sharply, effectively taking the move off the table for now.