Needless to say, the US rates complex reacted — and I’m searching for the right word here — energetically, to Friday’s jobs report.

The release was a barnburner on every line that counted. Both during last month’s press conference and during remarks in Nashville this week, Jerome Powell variously insisted the Fed’s not in a rush. If September’s CPI report, due in less than a week, comes in warm, the Committee will have to prove it, where that means starting to talk STIRs into coin-toss territory between no change and 25bps for the November 7 meeting.

That’s a lot of extrapolation, though. For now, November’s still a lock, but only for 25bps. As the figure below shows, about 10bps of rate-cut premium came out on the heels of the jobs report.

That left just ~5bps of cuts priced on top of the 50bps of additional easing tipped (narrowly) by the September dots. So, ~55bps for the balance of the year. 25 in November, 25 in December and only the slimmest of odds that one of those meetings will be a 50. My question is simple: Why not pause in November, then do 50 in December? Seems straightforward to me. Markets don’t see it. Yet.

“Taken at face value, this is a blowout,” Mohamed El-Erian said, of the jobs report. “On a standalone basis, this implies not just a solid but a strong labor market [and is] a good reason for the Fed to push back more against the market forcing it into the ‘single mandate’ policy box.”

El-Erian’s Friday remarks came during a week in which Bill Dudley likewise described the US labor market as a stubbornly resilient beast. “I’ve been too pessimistic about the risks of a so-called hard landing for the US economy over the past few years,” he wrote, for Bloomberg. Dudley, you’ll recall, argued for a preemptive 25bps cut in July, and his advocacy for 50bps in September was, I’d argue, a factor in the Fed’s deliberations (the Committee would deny that, but it’d be ridiculous to suggest no one brought it up or noticed). I wonder how long it’ll be before Bill informally “advises” the Fed to pause in November.

Even if the Fed does ultimately get the data it needs to justify a cut in a month’s time, I think markets are under-appreciating (where that means mis-pricing) the chances of an on-hold Committee. If core CPI overshoots on October 10, I dare say that’s the ball game.

Remember: The last CPI release was warm at the core. It’s very difficult to see how the Fed can get to a cut in November with two consecutive warm CPI releases, a barnburner NFP report and what’s all but guaranteed to be a robust first read on Q3 GDP due October 30, particularly given the long shadow of Bowman’s September dissent, the first from a governor since 2005.

Two-year yields repriced by almost 20bps on Friday. The figure shows you rate-cut pricing with twos.

Crucially — and this is the crux of the issue in my mind — the Fed is in a very good place considering the circumstances. There’s no reason to jeopardize it over 25bps at a non-SEP meeting. You can fairly argue they wouldn’t be doing anything of the sort given that 25bps doesn’t make a difference one way or the other. To that I’d say two things:

• First, it begs the question. If 25bps doesn’t make any difference, then why do it if the data doesn’t support it?
• Second, there are a pair of credibility issues at stake. One is hard-won inflation-fighting credibility, some of which could conceivably be lost if it starts to look like the Fed’s determined to cut rates come hell or high payrolls. The other’s related to politicization.

As of this writing, the jury’s still out. If CPI’s tame next week, everything’s ok and there’s nothing to see here. But if we get another warm release, things’ll get interesting.

For now, market participants aren’t inclined to question the November cut other than acknowledging, however grudgingly, that it ain’t gonna be 50. Or at least not barring some sort of shock.

There was at least one person willing to suggest, tacitly, that the jobs report might open the door to a wholesale rethink: Street veteran Priya Misra, who’s worked at damn near every bank worth mentioning. “The question is whether the Fed will still cut rates on this,” she said. “If inflation risks increase, it calls into question the entire easing cycle.”