Non-farm payrolls significantly exceeded expectations, "No more rate cuts this year" becomes a topic of discussion on Wall Street

Due to the far better-than-expected September non-farm data, more signals of an "economic soft landing" have been released, causing market expectations for interest rate cuts later this year to significantly converge.

Data released overnight showed that the US added 254,000 jobs in September, far exceeding expectations, with the unemployment rate dropping to 4.1%, the first decline in nearly a year, also lower than expected.

After the data was released, traders canceled bets on a 50 basis point rate cut in November, with expectations for the Fed's rate cuts over the next four meetings falling to less than 100 basis points; Bank of America and JPMorgan also reduced their expected rate cut in November from 50 basis points to 25 basis points.

End of Interest Rate Cuts for the Year?

Several analysts believe that due to the strong September non-farm data, the Fed may pause its rate cuts in November.

Glen Smith, Chief Investment Officer of GDS Wealth Management, stated:

"The job report on Friday was stronger than expected, allowing the Fed to flexibly choose to cut rates by 25 basis points at the November 7 meeting, or to pause rate cuts in November and reconsider in December."

Wall Street veteran Ed Yardeni stated that the Fed's monetary easing policy for the year may have ended as the strong non-farm report on Friday highlighted the economy's resilience.

Yardeni believes that the market's aggressive rate cut pricing has accumulated risks, so the Fed needs to be more cautious in this decision.

The risk is that additional easing policies will fuel investor excitement, laying the groundwork for painful market events. Yardeni said:

"Any further rate cuts will increase the likelihood of a 1990s-style stock market crash."

Yardeni believes that the 50 basis point rate cut in September was also "unnecessary":

"With the economy booming and the S&P index hovering near record highs, the Fed's decision to cut rates by 50 basis points in September—usually reserved for economic recessions or market crashes—was unnecessary."

Beware of Inflation Risks Behind Wage Growth

It is worth noting that the wage growth in this non-farm report is also a key indicator to watch.

The report shows that average hourly wages in September increased by 4% year-on-year, the highest since May, exceeding the expected 3.8%; average hourly wages in September increased by 0.4% month-on-month, in line with expectations of 0.3%, and unchanged from the previous value.

Former Fed Governor Randy Kroszner pointed out that if wage growth does not decrease and productivity growth is not strong enough, the Fed may need to take more aggressive measures to control inflation.

Kroszner explained that high wage growth could lead to consumer price increases, thereby driving inflation higher. Even if the Fed does not control wage growth through rate hikes or other monetary policy tools, stricter measures may be needed to curb inflation, which could have a negative impact on the job market.

October Non-Farm Payrolls May Be the Deciding Factor

Ahead of the Federal Reserve's next meeting on November 7th, a wealth of data on employment and inflation will determine the Fed's policy trajectory.

Ian Lyngen, head of U.S. rate strategy at BMO Capital Markets, pointed out that if the October non-farm payrolls report is relatively strong and inflation is proven to be sticky, the Fed may temporarily pause rate cuts.

In a report to clients, he wrote:

"The latest employment data suggests that the Fed may be reconsidering a rate cut in November... It's worth briefly considering what the Fed needs next month to pause rate hikes."