Fed eyes year-end rate cut amid limited data
The Federal Open Market Committee (FOMC) is scheduled to determine the policy rate during its Dec. 9-10 session, following the 25-basis-point reduction in October. Data collection has been constrained by the recent US government shutdown, which ended on Nov. 12. Key reports, including October employment and inflation figures, were delayed, leaving policymakers to rely on late September data and alternative sources from private organizations.
According to reports, US non-farm employment rose by 119,000 in September, exceeding forecasts, while the unemployment rate inched up from 4.3% to 4.4%. Unemployment claims fell to 191,000 in the week ending Nov. 29, marking the lowest level since September 2022.
However, private employment data released by the ADP Research Institute showed a decline of 32,000 jobs in November, the largest drop since March 2023. Meanwhile, consulting firm Challenger, Gray & Christmas reported 71,321 layoffs in November, up 24% year-on-year, and totaling 1,170,821 for the first 11 months of 2025 — a 54% increase compared to the same period in 2024.
Reports indicate inflation data have been sparse since the government reopened. The Producer Price Index (PPI) rose 0.3% month-on-month and 2.7% year-on-year in September, aligning with expectations. The core personal consumption expenditure (PCE) price index, excluding food and energy, increased 0.2% monthly and 2.8% annually in September, slightly below the expected 2.9% year-on-year rate. Consumer sentiment, measured by the University of Michigan, showed a rebound in December, with short-term inflation expectations dropping from 4.5% to 4.1%, reaching their lowest since January. Long-term expectations fell from 3.4% to 3.2%.
At the October FOMC meeting, the decision to reduce rates by 25 basis points passed 10-2, with one official supporting a 50-point cut and another favoring no change. “Hawkish” members prioritize controlling inflation and resist rate cuts, while “dovish” members cite weakening employment as a rationale for easing policy. Market expectations for December remain uncertain following comments by Fed Chair Jerome Powell that a rate reduction is not guaranteed, according to reports.
Olu Sonola, head of US economic research at Fitch Ratings, noted that despite delayed PCE data, September showed modest inflation and solid third-quarter consumer spending growth of 2.7%, up from 2.5% in Q2. He said: “For the Fed’s decision next week, this likely bolsters the case for a rate cut if the focus stays on a weakening labor market amid moderate inflationary pressures.”
Padhraic Garvey, regional head of research at ING, highlighted resilience in pockets of the labor market, despite rising layoffs, noting that jobless claims remain relatively low and durable orders are encouraging. He added: "Looking to next week, the probability for a Fed rate cut is at 95% - so it's going to happen!"
Steven Kamin, senior fellow at the American Enterprise Institute, described the employment picture as mixed but with downside risks. He observed that the 2.8% annual rise in core PCE is moderate, while monthly growth aligns with expectations. He concluded: “The risky employment picture and the lack of a more concerted rise in inflation will give the Fed the excuse it needs to cut rates another 25 basis points next week.”
Overall, the Fed faces a complex backdrop of mixed labor signals and moderate inflation, making a year-end rate reduction widely anticipated.
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