Are More Fed Rate Cuts on the Way? New Jobs Data Could Trigger a More Aggressive Approach

Key Takeaways

• The US economy added 64,000 jobs in November and lost 105,000 jobs in October, while the November unemployment rate rose to 4.6%.
• The data represents ongoing weakening in the labor market.
• Further cooling could prompt the Fed to cut interest rates earlier or by more than previously expected.

The Bureau of Labor Statistics released data showing the US economy added 64,000 jobs in November, putting an end to a weekslong delay in official statistics following the government shutdown in October. Tuesday’s release reinforces analyst assessments that the low-hire/low-fire labor market is gradually cooling.

The November payrolls figure was slightly higher than the 40,000 new jobs economists were expecting, but it was accompanied by an unemployment rate that rose to 4.6% from 4.4% in September, along with a slowdown in wage growth to 3.5%. The uptick in unemployment could be a critical consideration for the Federal Reserve. When the central bank cut interest rates earlier this year, it indicated that it remains highly attentive to downside risks in the labor market, citing a weakening jobs picture as its reasoning for easing policy.

Tuesday’s data “indicates that the Fed was correct to cut again,” says Morningstar senior US economist Preston Caldwell. He adds that another month or two of weak data could push the Fed toward more cuts in 2026. Caldwell notes that while one month of data should be interpreted “with some caution … [November’s release] does show a further ongoing weakening" as the labor market drifts further from full employment.

The BLS said the economy also lost 105,000 jobs in October. That sharp drop is due to dramatic declines in government jobs stemming from buyouts of federal workers, which took place over the course of this year but had not yet been fully reflected in official data.

However, in remarks following the Fed’s December meeting last week, Fed Chair Jerome Powell warned that economic data released this month could be distorted, and more volatile than usual, thanks to disruptions in collection stemming from the shutdown. As such, he emphasized that policymakers would review it with a careful and “somewhat skeptical eye.”

December’s jobs data, which will be released in early January, will “be relatively clean—free of DOGE and shutdown distortions—and will be more instructive about what the Fed will do next," says Christopher Hodge, chief US economist at Natixis.

Unemployment Rate Rises to 4.6%, Wage Growth Slows

November’s unemployment rate is the highest since the fall of 2021. If that number continues to rise, Caldwell says it would demonstrate “significant slack” in the market as job growth slows.

Caldwell says labor supply and demand falling in tandem would not have a major impact on the unemployment rate and would not be concerning for the Fed. But November’s uptick indicates an imbalance of supply and demand. On the demand side, job growth is slowing, while on the supply side, “a spike in those reentering the labor force” helped push the unemployment rate higher, wrote Jeffrey Roach, chief economist for LPL Financial.

A continuation of that trend could trigger the so-called “Sahm rule,” which observes that the economy has always fallen into a recession after the three-month moving average of the unemployment rate has risen more than half a percentage point within a 12-month period. “Recession would be back in the picture from that standpoint,” Caldwell says.

What’s Next for the Fed?

Over the past few months, Fed officials have been divided over policy as the labor market has weakened while inflation remained above target. “The delicate balance of the Fed’s dual mandate does not appear to be easing as trends in employment continue to weaken at a time when inflation remains above target putting the Fed’s two main objectives in direct conflict with one another,” says Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth.

The Fed cut rates in December despite an unusually high degree of disagreement among committee members, many of whom preferred to leave rates steady. If the December jobs data released in January also looks weak, it could change the calculus for some central bankers and may “swing some votes,” Caldwell says. “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 adds.

Caldwell emphasizes that a January pause is still likely: “It will take some time to see how the rate cuts at the end of 2025 impacted the economy.” Bond futures traders are pricing in 3-in-4 odds that the Fed pauses in January, according to data from the CME FedWatch Tool.

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			11m 29s
		 Dec 11, 2025

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