The December payrolls number was on the softer side but the unemployment rate dropped back a little to 4.4% (unrounded 4.375%). The latter seems to be enough to convince some market analysts that the labour market is at least holding up as we get into the new year, with the Fed likely not too much in a hurry to cut rates again next.
You can check out the full non-farm payrolls report here in case you missed it.
Barclays has now pushed back their Fed rate cut forecast from March and June previously to June and December instead. The firm expects the Fed to deliver a 25 bps rate cut in each of those two months.
Meanwhile, Morgan Stanley also pushes back their forecast for rate cuts from January and April to June and September now. And JP Morgan, who had previously penciled in a 25 bps rate cut for January, now no longer expects the Fed to cut rates at all in 2026. They have even gone so far to put in an argument for a 25 bps rate hike come Q3 2027.
So, that offers some glimpse of how the narrative might be slowly shifting or might shift when we get to the final quarter of this year. For now, rate cuts might still be needed as the Fed has to strike a balance between a softening labour market and inflation developments.
However, how long more until before rate hikes start coming back into the picture again? And how will Trump’s new mould of the Fed fit into all of this? Will politics outweigh independent thinking? There are plenty of questions that will need answering but for now, it seems that markets are convinced the Fed need not be rushing for the next rate cut again.
