- US interest futures swung sharply, reacting to the delayed NFP release and December rate cut odds.
- Analysts point to a very thin probability of a December rate cut amid hawkish FOMC minutes and labor market surprise.
- Missed October data holds more importance that could reshape the monetary policy expectations in 2026.
US interest futures swung swiftly on Thursday after fresh US data showed stronger job growth in September, prompting traders to reduce bets on December rate cuts. A few weeks ago, markets were certain about the rate cut. According to FactSet, the probability of a rate cut is down to 22% from 97% in mid-October. The CME FedWatch tool indicates odds of around 35%, which remains below the earlier 70%.
The repricing highlights the sensitivity of the futures curve to the data flow following the 7-week government shutdown, which had delayed economic releases and left the Fed without data visibility. With the blackout lifted, the delayed September NFP report showed 119k jobs added, far above the estimated 55k, while unemployment rose to 4.4%, the highest since 2021. The upward surprise has prompted market participants to shift away from bets on a rate cut in December, following reductions in September and October.
According to Morningstar’s Preston Caldwell, the data was not as bad as feared; combined with hawkish Fed commentary, it appears the Fed will skip a cut in December. However, he expects policymakers to resume easing from early 2026 if labor markets continue softening.
The upbeat payroll data triggered immediate moves in interest futures. Fed funds futures reflect the growing conviction that rates will remain unchanged at the December 9-10 meeting. The 2-year yields dropped 4 basis points to 3.556%, while 10-year yields softened to 4.1%. Both yields remain lower YTD, underscoring the extent of easing previously priced in. The government’s sale of 10-year TIPS worth $19 billion drew soft demand, clearing at a 1.843% yield, slightly higher than the pre-auction levels, forcing dealers to take a larger slice than usual.
The shift also reflects growing concerns about inflation as some Fed officials argue that cutting too quickly could reignite price pressures. FOMC minutes from the October meeting revealed a sharp division within the committee, with some members favoring rate cuts based on cooling labor market momentum.
The mixed signals have left interest futures gloomy as the October jobs data is still missing and won’t be available until the December meeting. As Morgan Stanley’s Ellen Zentner noted, September data may have surprised to the upside, but October’s numbers actually matter.
The next several weeks may remain volatile for US interest rate futures traders. The futures market now reflects that uncertainty: a December cut is no longer assumed, January is still open, and every data point from here matters more than usual.