Wall Street remains divided on whether the Federal Reserve will cut interest rates in December. The split follows Thursday’s September jobs report, which showed stronger-than-expected payroll gains but a higher unemployment rate.
The report was delayed by six weeks due to the U.S. government shutdown.
Nonfarm payrolls rose by 119,000 in September, beating the consensus estimate of 50,000. However, analysts at Vital Knowledge highlighted that downward revisions totaling 33,000 for July and August were “negative,” leaving August with an outright decline.
The firm also pointed to a sharp increase in the labor force, which pushed the unemployment rate up to 4.4%. Slower wage growth of 0.2% month-over-month gives policymakers who favor more easing an argument that the Fed can continue cutting rates.
At the same time, the strong headline jobs number sits well above the current break-even pace, strengthening the case for hawkish officials who want the Fed to hold steady.
CIBC Economics said the report should be enough for the Fed to pause in December. The firm cited the rebound in the three-month average job gain to 62,000 and the rise in labor-force participation to 62.4%. CIBC expects policymakers to delay major decisions until early next year, given the “data fog” and uncertainty around tariffs.
Wells Fargo economist Sarah House said the report “did not provide clarity” ahead of the December meeting. She argued that the Fed should cut rates by 25 basis points, pointing to modest labor-market slack and easing inflation pressures outside tariff-driven increases. Still, she expects internal debate to continue, with hawks likely highlighting firm job growth and above-target inflation.
Wolfe Research strategist Stephanie Roth took a more dovish view. She said the negative revisions and soft wage growth keep the possibility of a December cut “in play,” in line with her forecast for one more 25-bp reduction this year.
In contrast, Morgan Stanley’s Michael Gapen said the broad recovery in hiring suggests the summer slowdown may have been overstated. He argued that the rebound in payrolls reduces the risk of rising unemployment. As a result, Morgan Stanley no longer expects a December cut. Instead, the bank now anticipates rate cuts in January, April, and June, targeting a terminal range of 3.0% to 3.25%.
