Pricing Out the Hike

Two weeks after the Fed raised rates, markets expected another hike in October. This week that expectation was priced out. Fed officials said they were in no hurry to raise rates again, inflation came in soft, and the September jobs report was weak. By Friday afternoon, futures put the odds of an October hike at 22%, down from 66% on Monday. Bitcoin gained about 1% over the same stretch. The week's biggest wave of forced buying came overnight before the jobs report, when short sellers were squeezed out of their positions.

• The odds of an October hike fell from 66% to 22%. The biggest drops came after a Fed speech and a soft inflation report; the jobs report added a smaller step.
• The US added 29,000 jobs in September, against 84,000 expected. Over three months, hiring runs at about 51,000 a month, under a third of its 2010s pace.
• Short-term Treasury yields fell, long-term yields rose, and the yield curve steepened back to where it stood before the Fed's September hike.
• Futures positions built up into the jobs report. The week's biggest short squeeze came 8 hours before the release. After the release, Bitcoin slipped and long positions were liquidated.
• Options traders were paying for upside before the Fed's September meeting but not before this report. Implied volatility fell after the release, as it has after most jobs reports since 2024.

The Fed Talked the Odds Down

Fed funds futures put the chance of a quarter-point hike at the October 28 meeting at 66% on Monday. By Friday afternoon it was 22%.

The odds fell in steps, and each step lines up with an event on the chart. Weak consumer confidence and job openings figures on Tuesday barely moved them. Later that day, New York Fed President John Williams said that after the September hike there was "no need for urgency" and the Fed had time to gather more information before moving again. The odds dropped from 66% to 50% within 2 hours. On Wednesday, core PCE inflation, the Fed's preferred gauge, came in softer than expected and took off another 10 percentage points, even though GDP data released at the same time was stronger. On Thursday, a mixed ISM factory survey and Fed Vice Chair Philip Jefferson, who said the Fed may need more time and more data before its next step, pushed the odds lower again. A hotter euro-area inflation report on Friday morning barely registered.

Bitcoin's first reaction to each drop was up, but the moves were small or did not last. It rose 0.4% in the half hour after Williams spoke. It jumped after the PCE release and gave the gain back within 3 hours. On Thursday afternoon it climbed back above its Monday level as the odds slid. Overnight into Friday it rose another 2.1%, while the odds barely moved.

A Weak Report in a Long Slowdown

The September jobs report showed 29,000 new jobs, against 84,000 expected in a Dow Jones survey of economists. The unemployment rate rose to 4.2%, and the figures for July and August were revised down.

Because the single print tends to be noisy, the 3-month average is the better guide. It stands at about 51,000 jobs a month, under a third of the 2010s average of 183,000. The zoomed panel shows how the slowdown built up: hiring nearly stalled in 2025, at about 10,000 a month, and has recovered only part of the way this year.

Slow hiring gives the Fed a reason to leave rates unchanged, because a higher rate would put more pressure on a job market that is already cooling. Inflation points the other way: core PCE prices are up 3.0% over the past year, above the Fed's 2% target, and that argues for another hike. This week, traders moved their bets toward the Fed leaving rates unchanged in October.

Short Yields Fell, Long Yields Rose

The 2-year Treasury yield tracks what traders expect from the Fed; the 10-year also prices longer-run risks such as inflation and government debt. The gap between them measures the slope of the yield curve: normally positive, it was inverted from mid-2022 to late 2024, after the Fed's fast hikes.

Around the Fed's September hike, the 2-year rose faster than the 10-year and the curve flattened, with the gap narrowing from about 40 basis points (bp) to 20 bp. This week it steepened back as the 2-year fell on fading hike bets and the 10-year rose, widening the gap to 42 bp.

A curve that steepens because short-term yields fall usually means traders expect fewer rate hikes ahead. Long-term borrowing costs did not ease, though: the 10-year yield stood near 5.2% on Friday.

Leverage Built Up Into the Report

In the 24 hours before the release, open interest rose by $2.1B, partly because Bitcoin itself rose about 3%; counted in coins, positions still grew about 2.5%. Funding stayed positive but below its usual baseline, so longs were not crowding in.

Open interest kept rising for about an hour after the release, then fell by $1.5B as Bitcoin slid. That is more than half of what traders had added since midday on Thursday.

Shorts Were Squeezed Before the Report, Longs After It

Shorts made up about 60% of this week's liquidations. The biggest burst came at 04:20 UTC on Friday, 8 hours before the jobs report, when $50M of shorts were liquidated in 10 minutes. No data was due at that hour. The jobs report itself set off a much smaller squeeze.

After the release hour, the roles reversed: $11M of longs were liquidated as Bitcoin slid, against $2M of shorts. By 15:40 UTC, Bitcoin was more than 1% below its level just before the release.

Options Did Not Price the Jobs Report

When traders expect a big event within days, 1-week implied volatility tends to rise above 1-month, as in the shaded areas. Before the FOMC decision on September 16, it stayed above for all 48 hours, and the premium was gone within a day of the decision. The second spike, on September 21, came with a sudden price move: Bitcoin rose 2.7% in an hour, and short-dated volatility jumped with it.

Before the jobs report, the 1-week line stayed below the 1-month line for all 48 hours. Options traders did not expect payrolls to move Bitcoin much.

Volatility Fades After the Release

This chart lines up 32 jobs reports since 2024, each measured as the change in 1-week implied volatility from the last hourly reading before the release. The band covers the middle half of the reports and the line is their median; the band pinches at the release because every report starts at zero there.

The median is flat through the day before the release and falls through the day after. Implied volatility fell after 23 of the 32 reports. On other Fridays it also drifts lower over the same hours, by about half as much, so part of the drop is a normal Friday pattern. The extra drop on jobs days is too small to call reliable.

This report saw the same drop, only faster: within 3 hours, implied volatility had fallen as much as the median report does in a full day.

October 14 Is the Next Test

An October hike is still possible. Futures still price 22% odds for October and about 24 bp of hikes by December, close to one quarter-point move. The next big input is the September CPI report on October 14. A core CPI reading above forecast would make an October hike more likely again; a reading at or below forecast would keep the next expected hike in December.

Data through 15:40 UTC on October 2, 2026 for 10-minute series, and 15:00 UTC for hourly series and the hike odds. Jobs data from the BLS, current vintage, seasonally adjusted.

Disclaimer: This report does not provide any investment advice. All data is provided for informational and educational purposes only. No investment decision shall be based on the information provided here, and you are solely responsible for your own investment decisions.