The US Federal Reserve heads into next week’s final policy meeting of the year with limited data due to the recent government shutdown, but expectations for a 25-basis-point rate cut are rising.
The Federal Open Market Committee will set rates on Dec. 9–10 after cutting by 25 basis points in October. The shutdown—ending Nov. 12—delayed key releases, including the October jobs report and inflation data, leaving policymakers to rely on late September figures and private-sector indicators.
Labor data have been mixed. September non-farm payrolls rose by 119,000, though unemployment edged up to 4.4 percent. Initial jobless claims fell to 191,000, the lowest since September 2022. But ADP reported a 32,000 drop in private payrolls in November—the steepest since March 2023—and Challenger data showed 71,321 announced layoffs in November, up 24 percent from a year earlier and pushing total layoffs this year to 1.17 million.
Inflation indicators were broadly in line with expectations. September PPI rose 0.3 percent month-on-month and 2.7 percent year-on-year, while core PCE increased 0.2 percent and 2.8 percent, respectively. Consumer confidence ticked up in December, with both short- and long-term inflation expectations easing.
Fed officials remain split between hawks favoring tighter policy and doves citing a weakening labor market. Minutes from the October meeting highlight these divisions, and recent comments from Chair Jerome Powell cast doubt on a guaranteed December cut, though markets now price a 95 percent chance of one.
Analysts say the combination of softening employment and moderate inflation strengthens the case for easing. Fitch’s Olu Sonola noted steady consumer spending and subdued inflation, arguing this supports another cut. ING’s Padhraic Garvey highlighted ongoing labor-market resilience despite rising layoffs. AEI’s Steven Kamin called the labor outlook “murky” but sees downside risks that would justify a further 25-basis-point reduction.