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Federal Reserve policymakers look all but certain to reduce short-term borrowing costs by a modest quarter of a percentage point at their policy meeting next week, their confidence that the labor market is cooling but not crashing likely intact despite new data showing U.S. employers added fewer workers in October than in any month since December 2020.

The increase of 12,000 nonfarm payroll jobs last month was far short of the 113,000 economists had anticipated. But analysts pinned the bulk of the weak showing on the tens of thousands of workers kept temporarily off the job by a Boeing strike and the impact of two large hurricanes in the U.S. Southeast, as well as a poor response rate that clouds the true state of U.S. employment.

Some 512,000 people reported they were unable to work due to bad weather, the most for the month of October since the Bureau of Labor Statistics began tracking that figure in 1976.

The unemployment rate remained at 4.1%, low by historical standards.

But the report had weak spots. It showed that it may be getting harder to find a job once a person is out of work, with the average length of unemployment rising to 22.9 weeks, from 20.6 weeks in September. The labor force also shrank by 220,000 people, and the three-month average monthly job gain after downward revisions to prior months’ reports is now about 104,000, well below what most economists estimate is needed to keep up with immigration-fueled population growth.

Fed seen cutting policy rate by 25 bps in Nov, Dec

“Bad weather and large labor strikes muddy the water and make labor market weakness appear worse than it truly is,” Scott Anderson, chief U.S. economist at BMO Capital Markets, wrote in a note. “Still, the Fed’s job is to see through the noise, and they will probably take some signal from the continuing labor market softening as a sign that they can continue the process of monetary normalization without much fear of igniting another bout of inflation.”

Data earlier this week showed inflation by the Fed’s targeted measure running at 2.1% in September, just a notch above its 2% goal, though sticky underlying price pressures are expected to keep U.S. central bankers wary of declaring victory too early.

Notably, interest rate futures prices on Friday reflected no chance the Fed would deliver another half-percentage-point rate cut, as it did in September when it began easing policy to head off deterioration in labor markets.

Traders of futures that settle to the Fed’s policy rate instead moved to price in about a 99% chance that the central bank on Nov. 7 would cut its policy rate by a quarter of a percentage point to the 4.50%-4.75% range, compared with 92% before the release of the jobs data. They see about an 83% chance that the policy rate will be in the 4.25%-4.50% range by the end of this year, compared with 69% earlier.

Fed policymakers will begin their next two-day policy meeting a day after the U.S. presidential election on Tuesday, and though the result is not expected to directly factor into their decision two days later, many analysts see election uncertainty as an added temporary weight on the labor market in October that could be reversed in coming months.

Financial markets currently see the Fed lowering its policy rate to the 3.50%-3.75% range by September of next year.

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