Appearances can often be deceiving, and October's 4.1% unemployment rate -- the lowest since the end of Bill Clinton's presidency -- is just one more example.

Basically, the rate narrowed 10 basis points from the previous month for bad reasons, Bank of America economist Joseph Song wrote in a report on Friday, Nov. 3. The working-age population actually increased in October and the number of employed people declined, so lower unemployment was achieved only because the number of people not counted in the labor force widened by nearly 1 million.

That reverses labor-force growth in September and, coupled with lower-than-expected payroll growth and a slight decline in hourly wages, may make it tougher for the Federal Reserve to stick to its projections of as many as three increases in short-term interest rates next year, Song wrote. 

While this year's third hike, expected in December, probably won't be affected, "if the wage data doesn't show meaningful acceleration in coming months, and inflation struggles to find a better upward trend," the Fed's monetary policy committee "will have to consider a slower hiking cycle," he wrote. 

With twin goals of maximizing employment in the U.S. while achieving stable economic growth, the Fed has struggled with labor-market expansion that has failed to generate sufficient earnings growth or a targeted 2% inflation rate. Indeed, personal spending excluding food and energy rose just 1.3% in September.

The decline in salaries in October, meanwhile, dragged the year-over-year increase down 40 basis points from the previous month to 2.4%, Song said, noting that both periods were distorted by Hurricanes Harvey and Irma, which hammered the southern U.S. states of Texas and Florida.

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On the upside, "we do not see the storms as causing any permanent damage to labor markets," Barclays Plc (BCS) - Get Report economist Michael Gapen said in a note. "We continue to expect the unemployment rate to move lower," keeping intact the Fed's plans to raise short-term rates to more normal levels from the near-zero range maintained for seven years after the 2008 financial crisis, he wrote.

Like Bank of America's Song, Gapen predicted the Fed would take short-term rates to 1.25% to 1.5% in December.

The pace of the Fed's increases is important for banks from Citigroup Inc. (C) - Get Report to Bank of America Corp. (BAC) - Get Report and Morgan Stanley (MS) - Get Report , which typically bolster returns by passing along rate hikes more quickly to borrowers than depositors and have benefited from the four increases since late 2015.

How they will fare next year is a closer call.

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"The job market as a whole is healthy, but ongoing slowing in job growth (largely in retail) may indicate some underlying softening in the economy," wrote UBS economist Seth Carpenter.

For rate hikes to continue under a new Fed chair, presuming the Senate confirms Jerome Powell to succeed Janet Yellen in early 2018, the "economic expansion will need to remain intact," said Mark Hamrick, senior economic analyst for Bankrate.com. "And it should."

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Editors' pick: Originally published Nov. 3.