Wall Street is reacting to a better-than-expected labor market reading this morning. The US economy added 254,000 jobs in September, coming in significantly above the 150,000 expected by economists. Meanwhile, the unemployment rate ticked slightly lower to 4.1%, coming in below the 4.2% expected by economists.

Citi senior global economist Robert Sockin and Academy Securities head of macro strategy Peter Tchir join Morning Brief to dig into the print and what it means for the Federal Reserve's next interest rate decision.

Sockin notes that September's jobs report "feels a bit more consistent with some of the other dynamics we've seen in the economy," pointing to a moderating labor market and a resilient consumer. With this dynamic at play, he believes the Fed could move forward with a rate-easing cycle of 25 basis points, arguing, "It's hard to see a lot of urgency to go as fast as they did at the September meeting."

Tchir points out that year-over-year wage growth hit 4%, which isn't great news for the Fed. He believes that this figure "pushes the Fed out a lot" and may give Fed officials some pause as they move forward in the rate-easing cycle. Thus, he believes the Fed can initiate one more cut by the end of the year, which will likely be 25 basis points. However, further labor market readings will weigh on the decision, and at this juncture, Tchir anticipates the Fed to land at a terminal rate of 3.5%.

Sockin adds, "Right now, the Fed feels pretty confident that they're far above wherever neutral is. But they've also recognized that they don't know where that endpoint that they have to go is. And they'll kind of feel it out as they move through the data." He believes the upside risks to inflation are much lower now than before, and that the Fed has to continue lowering rates from here on out. However, he points to Brazil as a cautionary tale, explaining, "They paused their cutting cycle, and then now we see them hiking again given the economy and inflation have been more resilient."

While the Fed has been laser-focused on the labor market, Tchir believes that after this reading, it should be more focused on inflation: "China's been doing a lot of stimulus or announced a lot of stimulus that has not really hit commodities much. So we could see maybe some inflation coming out of China. So I think it's now much more a balancing act there," he explains.

He concludes, "I really do think they kind of thought 3% was kind of this neutral rate. Well, we've been chugging along in the economy at over 5%. Maybe the neutral rate is much higher — 3.5%, 4%. So I think they're going to digest some of that."

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This post was written by Melanie Riehl