Futures See 80% Odds of a Fed Hike. Friday's Jobs Report May Reshape the Bet

Futures markets are pricing nearly an 80% chance of a Fed rate hike at its next meeting, and Friday's October jobs report lands squarely on that bet. Michael Kramer, founder of Mott Capital Management, argues that unexpectedly hot jobs data could force a major repricing of how many hikes are left in this cycle — and when they land.

The report arrives at a pivotal moment. It will shape market views of the Fed's policy path at least until the November jobs report lands in the first week of December. A strong number would let the Fed focus solely on its inflation mandate, and it might force traders to rethink the two additional hikes currently priced in.

What do analysts expect for October payrolls?

Consensus forecasts call for nonfarm payrolls to grow by 65,000, up from 29,000 in September. The unemployment rate is expected to hold at 4.2%. Wage growth should rise 0.3% month over month, up from 0.1%, and slow to 2.9% year over year from 3.0%. The average work week is projected unchanged at 34.4 hours.

Friday's number isn't expected to be strong. Job creation has steadily declined over the past year, but the picture has shifted: the slowdown heading into the fall of 2025 is now behind us, and job growth has returned, even at a more modest pace.

Kramer notes analysts have projected slower growth for some time. Estimates have averaged around 64,000 a month since October 2025, down from roughly 171,000 a month from January 2023 through July 2025. The trend clearly turned lower in the spring.

Forecasting accuracy hasn't suffered much, though. Since January 2025, the jobs report has beaten estimates 11 times and missed 10 times. When it beats, it does so by about 63,000 jobs on average; misses average 59,000.

What does the payroll index say about labor-market health?

The Indexes of Aggregate Weekly Payrolls of All Employees may matter more as a gauge. That measure appears to have settled and is growing at a consistent rate since bottoming in December 2025. The recovery suggests the slowdown in the labor market and wage growth has stabilized.

So while headline wage growth and job creation have slowed, growth looks consistent with the pre-COVID labor market, which ran between 4% and 5% a year. The problem is inflation, which has run high and hurt real wages — and that's why the Fed needs to focus on that side of its mandate, Kramer writes.

The implication: unless the report shows a spike in unemployment or an unexpected drop in payrolls, the market's view of the Fed's path is unlikely to move much.

How many more hikes are priced in?

Right now the market prices one hike in December and one more in 2027, with the cycle ending in 2027. A strong October report strengthens the case for further tightening; a strong November report, Kramer warns, "would sound the alarm for more than two more rate hikes."

What could actually trigger repricing is a much hotter-than-expected report with a sharp drop in the unemployment rate. That would lift the odds of a December hike and could speed up expectations for the timing of hikes, potentially adding more to the outlook.

The deeper question is whether two hikes are enough. With two increases priced in, on top of September's hike, the market assumes the Fed will simply reverse the cuts delivered at the end of 2025. Kramer thinks that assumption may be wrong. Headline PCE bottomed in March 2025 at 2.3% and started rising right after, even before the Fed began cutting.

"So if headline PCE never got back to 2% when the effective fed funds rate was 4.3%, what is the thinking that just taking it back to 4.3% will be enough this time around?" he asks. Friday's payroll number, and the one in early December, will tell traders whether that skepticism is warranted.