Rate Decision Uncertain Amid Data Gaps and Job Losses

The Fed’s preferred inflation gauge, the PCE index, rose 2.8% year-over-year in September, slightly under forecasts, fueling speculation of a rate cut.
A government shutdown delayed key October and November reports, forcing the Fed to make its next move with limited data.
The labor market is weakening. November saw a net loss of 32,000 private-sector jobs, and college-educated unemployment is rising.
Markets expect a 25-basis-point cut, but the Fed’s messaging on future rate policy may have a bigger impact.

Key Takeaways

Globe St reports that the Federal Reserve is heading into its December 10 meeting with an incomplete economic picture. The September PCE index showed annual inflation at 2.8%, just below the 2.9% forecast. While this suggests inflation may be cooling, it’s still above the Fed’s 2% target.

A record-long government shutdown delayed several key reports. As a result, the Fed won’t have October inflation or jobs data in time. Some November numbers may arrive later, but too late to influence this week’s decision.

Policymakers must now rely heavily on September data and broader trends to guide their vote.

Labor Market Sending Mixed Signals

Unemployment claims remain near record lows. For the week ending November 29, just 191,000 people filed initial claims — a figure not seen since 2022 and, before that, 1969.

But other signs point to a weakening labor market. ADP and Stanford’s Digital Economy Lab reported a net loss of 32,000 private-sector jobs in November. Meanwhile, college-educated workers now make up 25.3% of the unemployed — the highest share since records began in 1992.

These trends raise concern. While jobless claims suggest stability, employment losses in key sectors and rising educated unemployment hint at deeper problems.

Markets Expect a Cut — But That’s Just the Beginning

Markets still expect the Fed to lower rates by 25 basis points. As of early December, CME Group’s FedWatch tool put the odds at 86.2%. But that number has slipped from 90% earlier this month, showing growing uncertainty.

Recent signals show growing disagreement within the Fed itself, which is shaping how investors interpret the central bank’s next steps. Many are now focused less on this week’s likely outcome and more on how officials will communicate their longer-term outlook.

“Despite the likelihood of next week’s rate cut, markets will be looking to see how the Fed — and especially Fed Chair Powell — describe the outlook for next year,” said Chris Zaccarelli, Chief Investment Officer at Northlight Asset Management.

Why It Matters

The Fed’s upcoming decisions will shape the direction of the economy in 2026. Cutting too soon could push inflation back up. Waiting too long might cause more damage to a labor market that’s already showing signs of strain.

With limited data and mixed signals, the Fed faces one of its toughest calls yet. Policymakers will need to balance incomplete information, persistent inflation, and early signs of a slowdown — all without derailing a fragile recovery.