:max_bytes(150000):strip_icc()/GettyImages-2250476142-68d05049f2de47a5bf47070765c9ff33.jpg "Rising Unemployment Adds Pressure on the Fed to Consider More Rate Cuts")
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Key Takeaways
- The uptick in unemployment in November shows that the Federal Reserve was justified in cutting interest rates earlier in the year, economists said.
- The Fed is expected to pause its rate-cutting campaign in January to assess the impact of cuts so far, but the poor jobs report kept a January cut on the table.
- The Fed is cutting borrowing costs in hopes that easier money will boost spending and hiring.
An unexpected jump in the unemployment rate Tuesday kept pressure on the Federal Reserve to rescue the job market by cutting interest rates.
Fed officials—concerned about the health of the labor market and left with limited data to go on during the government shutdown—opted to cut the central bank’s key interest rate last week for the third time in as many meetings.
Tuesday’s jobs report kept those worries alive when it showed the unemployment rate rose to 4.6% in November from 4.4% in September, reaching a fresh high since 2021.
What This Means For The Economy
The faltering job market makes the Federal Reserve more likely to lower borrowing costs, which could boost the economy and potentially prevent a surge of unemployment.
Fed officials have been divided over how best to pursue the central bank’s dual mandate from Congress to keep inflation low and employment high, at a time when the economy isn’t cooperating with either objective.
One faction prefers to keep interest rates higher for longer to crush inflation that’s still over the Fed’s goal of a 2% annual rate. Another prefers faster rate cuts to prevent unemployment from rising severely. The federal funds rate influences borrowing costs on short-term loans, allowing the central bank to discourage spending with high, “restrictive” rates or encourage it with lower ones.
Weak Jobs Report Could Keep Rate Cut Hopes Alive
Tuesday’s job market report gave ammunition to the rate cut advocates, although it didn’t settle the debate.
The Fed will get another jobs report before its next meeting, as well as several reports on inflation, which could tip the balance one way or the other. The Fed may also take the data with a grain of salt, as the government shutdown in October and November interfered with the Bureau of Labor Statistics’ ability to conduct the surveys used to compile the report.
As of Tuesday, financial markets were pricing in a 24% chance of a January cut, and a likelihood of one additional cut at some point in 2026, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.
The details of the report, however, were mixed enough that some economists could argue that the job market is sufficiently resilient, suggesting there’s no urgency for the Fed to rescue it with rate cuts.
“The private sector nonfarm employment readings for November and October signal that while net hiring remains soft and narrowly based, it is not softening further and in fact is moderately firmer than the weak readings in the summer,” Kathy Bostjancic, chief economist at Nationwide, wrote in a commentary.
Delayed Data ‘Justified’ Fed’s Past Cuts
Several economists said the report showed Fed officials were right to cut interest rates earlier in the year but that further cuts were not necessarily a done deal, at least not right away.
“Today’s data should be treated with some caution, but it shows a labor market drifting further away from full employment, meaning the Fed’s three rate cuts to end 2025 were well justified,” Preston Caldwell, chief U.S. economist at Morningstar, wrote in a commentary. ”
“If today’s data is confirmed by subsequent readings, we could see two or three rate cuts in the first half of 2026, rather than the single cut priced in by the market as of yesterday,” he wrote. “On the other hand, we think it’s still very likely the Fed pauses in January, as it will take some time to see how the rate cuts at the end of 2025 impacted the economy.”
In recent months, several Fed officials have voiced concerns that employers have curtailed hiring, at least partly because of uncertainty surrounding President Donald Trump’s campaign to raise import taxes on nearly every U.S. trading partner.
“This report bolsters the way we have been thinking about the Fed’s current policy approach,” Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, wrote in a commentary. “The delivery of ‘insurance’ cuts over the past few months was prudent and brought rates to a more neutral level. One additional cut may be appropriate in the first quarter of 2026, but the economy looks stable enough to heed patience in taking additional action.”
