Fed Expected to Cut Rates Again in December as Job Market Weakens
The U.S. Federal Reserve is expected to lower its key interest rate by 25 basis points next month, according to 80% of economists surveyed by Reuters. The move is aimed at supporting a softening labor market, with more economists now backing a December cut than in last month’s poll.
This growing consensus contrasts with ongoing disagreements among Federal Open Market Committee (FOMC) members, who remain divided on whether another rate reduction is justified — particularly amid limited official data caused by the record-long government shutdown.
Last month, the Fed cut rates by a quarter percentage point, a move that drew rare dissent from both hawkish and dovish members. Fed Chair Jerome Powell emphasized that a December rate cut was “not a foregone conclusion.”
According to the poll, 84 of 105 economists expect another quarter-point reduction on December 10, bringing the federal funds rate down to 3.50%-3.75%, while 21 expect no change.
Labor Market Weakness at the Center of Fed’s Debate
UBS economist Abigail Watt said the continued softness in the labor market is a key reason behind expectations for another rate cut. However, she cautioned that upcoming data could shift sentiment if it shows stronger-than-expected employment trends.
The potential reopening of the government, following a Senate-approved temporary funding bill, may also help clear data uncertainty before the next Fed meeting.
Watt added that the Fed faces a growing tension between labor and inflation priorities, noting that inflation pressures may continue to rise even as hiring slows.
Inflation Pressures Remain Persistent
The Personal Consumption Expenditures (PCE) index, the Fed’s preferred measure of inflation, has stayed above the 2% target for more than four years, the longest stretch since 1995. The poll indicates it will remain above 2% through 2027, raising concerns about the Fed’s credibility.
Vanguard economist Josh Hirt noted that prolonged high inflation could eventually erode confidence in the Fed’s price stability mandate, warning that tariff-related inflation might not be as temporary as some policymakers believe.
Outlook: Slower Growth Ahead
Nearly half of economists surveyed expect rates to fall further to 3.25%-3.50% next quarter, though there is no consensus on the Fed’s rate path beyond 2026.
Most respondents said job growth has remained steady since the shutdown began, despite private data suggesting job losses. The unemployment rate, last at 4.3%, is projected to rise slightly to 4.5% in 2026, reflecting gradual labor market cooling.
According to Bank of America’s Stephen Juneau, the labor market is cooling but not collapsing. He added that a December rate cut may only happen if Powell sees clearer signs of worsening job conditions.
U.S. GDP growth is expected to slow sharply — from 3.8% in Q2 and 2.9% in Q3 to 1.0% in Q4, before stabilizing at around 1.8% annually through 2027, which the Fed considers a non-inflationary growth rate.
