The Fed can stay focused on inflation
Despite its recent weak showing, we believe the U.S. labor market remains healthy.
Last week’s jobs report caught investors by surprise, with the U.S. economy adding just 29,000 new jobs in September versus an expected 90,000. Job growth numbers for July and August were also revised lower.
But a look beyond that one report reveals what we see as a stable job market that’s strong enough for the Federal Reserve Board to keep its focus firmly on reining in inflation. Example: Employment growth has averaged a solid 66,000 over the past six months—far better than the six-month average seen over much of last year (see the chart).
Change in Nonfarm Payrolls
Bloomberg, calculations by Horizon, data as of 09/30/2026
Other signs of the job market’s overall good health:
- The unemployment rate in September rose only slightly to 4.2%, still near its modern-day low.
- The labor-force participation rate (the share of people working or looking for work) rose last month in a sign of continued labor market strength.
These positives may allow the Fed to continue its quest to lower inflation without fear of hurting workers’ employment status. What’s more, a gradual slowdown in job growth may even help bring inflation under control by modestly trimming consumer demand without damaging corporate earnings.
Meanwhile, the economy continues to march steadily forward, with August real personal consumption spending rising more than expected, newly revised second-quarter GDP growth of 2.2%, and expected third-quarter GDP growth¹ above 3%.
These signs of strength suggest the market may be less concerned about the timing of the next hike and more concerned that the Fed’s overall rate path is too low. We saw this with the 10-year Treasury yield rising last week despite the weak September jobs report. While it’s uncertain whether the Fed will raise interest rates at its October meeting, the market still seems to see justification for higher rates longer term.
The upshot: We believe the key foundations of continued growth remain solid heading into the final months of 2026.