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The labor market offered an unexpected surprise on Friday as the September jobs report showed 254,000 payrolls added in September — 104,000 more than expected.

Worries of a flagging labor market have been the main point of economic focus over the past month as the conversation has turned from inflation, which appears to be in control at last, to the other half of the Fed’s dual mandate.

In the leadup this week, two key reports showed mixed data. The JOLTS numbers showed more job openings, but more conservative hires and quits. The ADP numbers showed surprising strength in private payrolls, but lower wage gains for job switchers — a key labor market thermometer that dogged the inflationary 2021 and 2022 years.

As our Chart of the Week shows, the economists have been caught off guard. September’s report has suddenly changed expectations for the Fed’s trajectory, as the market now sees four 25 basis point rate cuts over the next four meetings and a higher terminal rate when the cuts end.

Renaissance Macro Research’s Neil Dutta sees the print as bolstering the guidance of a 25 basis point cut per meeting until 2025, noting that the report “overwhelms all other employment indicators” that showed a weakening labor market.

“Today’s data might be the first sign of stabilization,” Dutta wrote on X, formerly Twitter.

Nearly every note we saw from Wall Street economists Friday was in agreement. This shifting dynamic suggests that not only is 50 basis points off the table for November’s meeting — some are even questioning any further cutting with numbers so strong.

“Looking at the [labor] market strength evident in September’s employment report, the real debate at the Fed should be about whether to loosen monetary policy at all,” Capital Economics chief North America economist Paul Ashworth wrote in a note to clients on Friday. “Any hopes of a [50 basis point] cut are long gone.”

On the one hand, life comes at you fast. A new report comes and blows everybody’s views out of the water and even threatens to pull the dreaded topic of inflation back in, just when we thought we were out.

On the other, to quote Fed Chair Powell from the June meeting, “it always makes sense to look at a series … rather than just one report.” The “totality” of data, not just one report — which of course will get more weight because it’s still warm from the printer, magnifying the effect of an already huge beat.

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What is clear is that the Fed’s wait-and-see, meeting-by-meeting attitude is far from ready to be abandoned, as the moment’s uniqueness keeps showing itself.

Besides the unexpected headline numbers, the unemployment rate-focused Sahm Rule — which has already been played down by its creator, Claudia Sahm — showed an unusual retreat after previously surpassing a recessionary mark that, once passed, usually keeps going up. Another point for the “this time could be different” camp.

It doesn’t end there. Year-over-year wage growth was 4%, up from 3.9%, a gain that would typically spark serious inflation concerns, but hasn’t. Putting aside whether “not cutting” is perhaps tantamount to hiking, the fundamental narrative of the Fed’s directionality hasn’t changed, only adjusted.

Counterbalancing the jobs numbers is survey after survey that shows labor sentiment declining — a factor arguably as important as the actual numbers. (If people feel like jobs are scarce, they may also feel like spending a little more conservatively.)

“On the face of this the Fed should be hiking rates with these sorts of figures, not cutting rates,” wrote ING’s James Knightley. “Nonetheless, we feel that the risks remain skewed towards weaker growth and lower Fed funds given the perception amongst households of a deteriorating jobs market (even if today’s numbers don’t confirm that), which may lead to consumers spending more cautiously.”

For the Fed, at least, the wait-and-see approach looks even better than it did previously as it seeks to gently land the plane. With both the economy looking strong and inflation getting in check, nothing sits to force its hand — for now.

Ethan Wolff-Mann is a Senior Editor at Yahoo Finance, running newsletters. Follow him on X @ewolffmann.

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The US labor market added far more jobs than projected in September while the unemployment rate unexpectedly ticked lower, reflecting a stronger picture of the jobs market than Wall Street had expected.

Data from the Bureau of Labor Statistics released Friday showed the labor market added 254,000 payrolls in September, more additions than the 150,000 expected by economists.

Meanwhile, the unemployment rate fell to 4.1%, from 4.2% in August. September job additions came in higher than the revised 159,000 added in August. Revisions to both the July and August report showed the US economy added 72,000 more jobs during those two months than previously reported.

Wage growth, an important measure for gauging inflation pressures, rose to 4% year over year, from a 3.9% annual gain in August. On a monthly basis, wages increased 0.4%, in line with August’s reading.

The key question entering Friday’s report was whether the data would reflect significant cooling in the labor market, which could prompt another large Fed interest rate cut. Robert Sockin, Citi senior global economist, told Yahoo Finance that the better-than-expected jobs report makes it less likely the Fed moves with the “urgency” it did at its September meeting when the central bank cut interest rates by half a percentage point.

“This pushes the Fed out a lot,” he said, adding that it’s uncertain the Fed will make a 50 basis point cut again this year.

Read more: Jobs, inflation, and the Fed: How they’re all related

Following the report, markets were pricing in a roughly 5% chance the Fed cuts interest rates by half a percentage point in November, down from a 53% chance seen a week ago, per the CME FedWatch Tool.

“Looking at the labour market strength evident in September’s employment report, the real debate at the Fed should be about whether to loosen monetary policy at all,” Capital Economics chief North America economist Paul Ashworth wrote in a note to clients on Friday. “Any hopes of a [50 basis point] cut are long gone.”

Futures tied to major US stock indexes rallied on the news. S&P 500 futures (ES=F) put on nearly 0.8%, while Dow Jones Industrial Average futures (YM=F) added roughly 0.5%. Contracts on the tech-heavy Nasdaq 100 (NQ=F) moved 1.1% higher.

Renaissance Macro head of economics Neil Dutta wrote in a note following the release that September’s jobs report was “undeniably good news” for the equity market.

“At the end of the day, the Fed is still cutting policy rates even as the economy grows,” Dutta wrote.

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Also in Friday’s report, the labor force participation was flat from the month prior at 62.7%. Food services and drinking places led the job gains, rising 69,000 in the month. Meanwhile, healthcare added 45,000 jobs, and government jobs ticked higher by 31,000.

Earlier this week, data from ADP showed the private sector added 143,000 jobs in September, above economists’ estimates for 125,000 and significantly higher than the 99,000 seen in August. This marked the end of a five-month decline in private-sector job additions.

“This is a pretty healthy, widespread rebound,” ADP chief economist Nela Richardson said. “And probably unexpected by many people who thought the job market was on a downward slide. This month, of course, gives pause to those kinds of assessments. Hiring is still solid.”

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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