Fed expected to deliver third straight rate cut this week amid labor concerns

Core Viewpoint - The Federal Reserve is expected to cut interest rates at the upcoming meeting despite inflation remaining above target levels, driven by concerns over a weakening labor market [1][8]. Interest Rate Decisions - The Federal Open Market Committee (FOMC) is anticipated to announce a 25-basis-point interest rate cut, marking the third consecutive meeting with a rate reduction [1]. - Minutes from the last FOMC meeting revealed significant divisions among policymakers regarding the appropriateness of a rate cut, with some expressing concerns about its potential impact on inflation [2]. Market Expectations - Market expectations for a rate cut have fluctuated significantly, with the CME FedWatch tool indicating a 30% probability of a cut on November 19, down from 98% a month prior, but rebounding to 87% as of December 5 due to soft labor market data [3]. Labor Market Conditions - Layoffs announced in 2025 through November reached 1,170,821, the highest for a comparable period since 2020, with the private sector unexpectedly losing 32,000 jobs in November [6][8]. - The labor market is showing signs of weakness, with indicators such as rising unemployment, a low hiring rate, and increased layoff announcements [10]. Inflation Metrics - The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index, remained elevated at 2.8% for headline PCE and 2.9% for core PCE in September [7]. - Projections suggest core PCE inflation may rise to about 3.2% in early 2026 before declining to around 2.3% by the end of next year [9]. Policymaker Perspectives - Economists note that there are compelling reasons both to cut rates and to hold them, with a potential "hawkish" tone accompanying any cut announcement [12][13]. - Anticipation exists for at least two dissents against a rate cut, as well as one in favor of a larger cut [14].