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as september's non-agricultural data far exceeded expectations and released more signals of a "soft landing" for the economy, the market's expectations for an interest rate cut within the year have sharply converged.

the latest data showed that the u.s. non-farm payrolls increased by 254,000 in september, far exceeding expectations, and the unemployment rate fell to 4.1% for the first time in nearly a year, which was also lower than expected.

after the data was released, traders canceled bets on a 50 basis point interest rate cut in november and expected less than 100 basis points of interest rate cuts in the next four fed meetings; bank of america and jpmorgan chase also reduced their expectations for the fed's november interest rate cut. the value was lowered from 50 basis points to 25 basis points.

is this year’s interest rate cuts over?

many analysts said that due to strong non-farm payroll data in september, the federal reserve may suspend interest rate cuts in november.

glen smith, chief investment officer of gds wealth management, said:

"friday's stronger-than-expected jobs report gives the fed flexibility to cut interest rates by a quarter point at its nov. 7 meeting, or to pause in november and reconsider a rate cut in december."

wall street veteran ed yardeni said the federal reserve's monetary easing policy for the year may be over as friday's strong non-farm payrolls report highlighted the economy's resilience.

former fed governor randy kroszner also believes that the fed can choose not to cut interest rates if the data proves necessary:

"if the data continues to beat expectations like this, the fed may decide not to cut rates at all."

yardeni believes that the market's aggressive pricing of interest rate cuts has accumulated risks, so the fed should be more cautious in this decision.

the risk is that additional policy easing will fuel investor excitement, which will set the stage for a painful market event. yardeni said:

"any further rate cuts would add to stock market bubbles and increase the chances of a 1990's-style melt-up."

in the 1990s, the s&p fell by a third from its peak when the stock market bubble burst due to overvaluation of technology stocks.

in yardeni’s view, the 50 basis point interest rate cut in september was “unnecessary”:

“with the economy soaring and the s&p hovering near records, the fed’s decision in september to cut interest rates by 50 basis points — a move typically reserved in response to a recession or market crash — was unnecessary.”

be wary of inflation risks behind wage growth

it is worth noting that the salary increase in this non-agricultural report is also an indicator worthy of attention.

the report showed that average hourly wages in september increased by 4% year-on-year, the highest since may, exceeding expectations of 3.8%; average hourly wages in september increased by 0.4% month-on-month, and were expected to increase by 0.3%, unchanged from the previous value.

kroszner noted that if wage growth does not decline 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 higher consumer prices, thereby pushing up inflation. even if the fed does not raise interest rates or use other monetary policy tools to control wage growth, stricter measures will be needed to curb inflation, which could have a negative impact on the job market.

non-farm payrolls in october may become a decisive factor

ahead of the fed's next meeting on november 7, a raft of data on employment and inflation will determine the fed's policy trajectory.

ian lyngen, head of u.s. interest rate strategy at bmo capital markets, pointed out that if the october non-farm payrolls report is relatively strong and inflation proves to remain sticky, the fed may temporarily pause interest rate cuts.

in a note to clients, he wrote:

"the latest jobs data suggests the fed may be reconsidering a november rate cut... it's worth briefly thinking about what the fed will need next month to pause its rate hikes."