Payne Capital Management President Ryan Payne discusses whether the Federal Reserve should cut interest rates in December on Varney & Co.
Federal Reserve Policymakers are expected to cut interest rates at this week’s meeting, even though inflation remains above their target due to concerns about a slowdown in the labor market.
The Federal Open Market Committee (FOMC), the central bank’s monetary policy-setting committee, will announce its decision on interest rates on Wednesday. Most markets expect an interest rate cut of 25 basis points, which would mark the third consecutive rate cut meeting – although expectations have evolved over time.
Minutes from the latest FOMC meeting showed deep divisions among policymakers over whether a rate cut would be appropriate in December, as they seek to gradually return interest rates to a neutral level, with some expressing concerns about the impact cutting rates at that time could have on inflation.
Market expectations for a rate cut at this week’s meeting have changed dramatically due to these concerns and disruptions in economic data releases. The CME FedWatch tool showed a 30% chance of a rate cut on Nov. 19, up from 98% a month earlier, as skepticism prevailed. These probabilities rebounded to 87% as of December 5 in a context of weakness labor market data.
Fed’s preferred inflation gauge shows consumer prices remained high in September
Federal Reserve Chairman Jerome Powell and central bank policymakers are expected to announce their latest interest rate decision on Wednesday. (Justin Sullivan/Getty Images/Getty Images)
A report from global outplacement firm Challenger, Gray & Christmas found that announced redundancies in 2025 through November stood at 1,170,821 cuts – the highest level for a comparable period since 2020, when 2,227,725 job cuts were announced in the middle of November. Covid-19 pandemic.
The ADP Jobs Report showed that the private sector unexpectedly lost 32,000 jobs in November, including 120,000 at small businesses, outpacing modest gains by large businesses.
The weak labor market data comes as the Fed’s preferred inflation gauge, the personal consumption expenditure (PCE) index, remained elevated at 2.8% for overall PCE and 2.9% for core PCE in September, which is the most recent data release for this measure due to the effects of the government shutdown on data collection.
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Gregory Daco, chief economist at EY-Parthenon, said in a note that policymakers face three questions ahead of this meeting: how persistent will tariff-induced inflation be, how weak the labor market is, and how close monetary policy is to neutrality.
Daco said that tariff-induced inflation “remains a thorny question in a new economic paradigm defined by the superposition of supply shocks ranging from trade policy and tariffs to demographic shifts, immigration fluctuations and an emerging technological revolution in AI.”
He noted that the firm expects core PCE inflation to reach around 3.2% in early 2026 before declining to around 2.3% by the end of next year. Daco added that it is difficult to assess the labor market, given a sharp decline in immigration and an aging population, although he pointed to signs of weakness.
“Most indicators now point to a sluggish labor market after two years of deterioration illustrated by rising unemployment, a hiring rate at its lowest level in a decade, an increase in continuing applications, numerous layoff announcements and job cuts among workers. small businesses“Daco wrote.
FED CHAIRMAN EXPLAINS VOTE AGAINST INTEREST RATE CUTS
Michael Feroli, chief U.S. economist at JPMorgan, said in a note that as the policy meeting approached, there were “almost as compelling reasons to cut as to maintain” and that the final decision would come down to the vote count.
“Most governors appear to favor a cut, and most Reserve Bank presidents appear to favor remaining. The most decisive news to tip the scales was New York Fed President Williams’ remarks two weeks ago that there was room for another cut ‘in the near term,'” Feroli wrote.
He added that there could be a “hawkish” tone that would accompany a taper announcement by implying that the Fed could suspend rate cuts during the January political meeting.
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Feroli noted that the firm expects at least two dissents in favor of no rate cut as well as one in favor of a larger rate cut.
