US Adds 29,000 Jobs in September as Unemployment Rises to 4.2%, Easing Pressure for October Fed Rate Hike

WASHINGTON — U.S. employers added far fewer jobs than expected in September and the unemployment rate edged higher, signs of a cooling labor market that gave Federal Reserve policymakers more reason to hold off on another interest rate increase this month.

The economy added just 29,000 jobs last month, the Labor Department reported Friday, well below the 90,000 economists had forecast. The unemployment rate rose to 4.2% from 4.1% in August.

The report also showed hiring in previous months was weaker than first reported. Revisions cut a combined 60,000 jobs from July and August payrolls, with August's gain lowered to 133,000.

It was the final monthly jobs report before November's midterm elections, which come at a time of widespread public frustration over the high cost of living.

Fed rate hike odds fall

The weaker-than-expected numbers lowered expectations that the Fed will raise interest rates again at its meeting later this month.

After the report, interest-rate futures showed less than a 1-in-5 chance of a rate hike in October, down from more than 1-in-4 before the data was released. Traders also scaled back bets on a December increase, though that move was still seen as nearly 90% likely.

The Fed raised its benchmark short-term interest rate by a quarter of a percentage point in September to help bring inflation back toward its 2% target. Policymakers signaled they would likely raise rates again by the end of the year if the war with Iran and other shocks that have pushed up prices continue, as long as the job market holds up.

Friday's report suggested the labor market may not be holding up as well as officials had hoped.

Fed Vice Chair Philip Jefferson said this week that inflation remains too high, but he stopped short of endorsing another increase. He said policymakers "will need to come to our own judgment, which may take more time."

Where the jobs were

Health care led job growth in September, adding 17,000 positions, though that was well below the sector's average gain of 33,000 a month over the past year. Construction added 11,000 jobs.

Wage growth was also weak. Average hourly earnings rose just 0.1% from August, below the 0.3% increase economists had expected. Wage gains have trailed inflation for five consecutive months, eroding workers' buying power.

The rise in the unemployment rate partly reflected more people joining the labor force, according to Bloomberg.

'Low hire, low fire'

The report points to a labor market that continues to lose momentum after a long period of what economists describe as "low hire, low fire" conditions, in which companies have avoided large layoffs but have been slow to add workers.

University of Michigan economist Justin Wolfers described the report on social media as "all around weak — but not tragic."

Businesses have cited a range of pressures, including surging energy costs tied to the war with Iran, higher inflation, rising interest rates and uncertainty about the economic outlook.

Layoff announcements have remained relatively low. Outplacement firm Challenger, Gray & Christmas reported Thursday that U.S.-based employers announced 43,281 job cuts in September, down 18% from August.

"Companies are in a wait-and-see period right now," Andy Challenger, the firm's chief revenue officer, said Thursday.

Workers feeling uneasy

Despite the relatively low unemployment rate, many Americans remain worried about their job prospects. Glassdoor said its employee confidence index fell last month to the lowest level in records dating back to early 2016, a period that includes the COVID-19 pandemic. It was the index's third record low this year.

"People know that being laid off is unusually costly right now," Glassdoor's Daniel Zhao said.

The job market has improved from a weak 2025, when employers added an average of just 10,000 jobs a month. But slower hiring makes it harder for people who lose jobs to find new ones.

Market reaction

Stock futures added to gains after the report, and Treasury yields fell as investors reduced bets on further rate hikes. Bond yields had surged to their highest levels in more than two decades earlier in the week, as investors worried about persistent inflation and heavy government borrowing.

Lower yields could provide some relief to borrowers. Mortgage rates have risen for six straight weeks, reaching 7.3%.

Political backdrop

The report lands weeks before the midterm elections, in which the economy and the cost of living are expected to be major issues. Voters have expressed frustration over high prices, driven in part by soaring energy costs since the outbreak of the Iran war.

Fed policymakers will weigh Friday's report alongside upcoming inflation data as they decide whether to raise rates again. Economists will closely watch whether job growth continues to slow, which could shift the central bank's focus from fighting inflation toward supporting the labor market.