The likelihood of a Federal Reserve rate cut in December has risen above 50% after two major labor market reports indicated continued weakness in U.S. employment. UBS economists also expect another rate cut at the upcoming FOMC meeting, which could support Bitcoin and the broader crypto market.
Odds Rise After Soft Job Reports
CME FedWatch data now shows a probability above 50% for a 25-basis-point rate cut at the December FOMC meeting. In contrast, the odds of keeping rates unchanged have slipped to 49.6%.
Last week, chances of a December cut dropped to around 44% after several Fed officials expressed concerns about rising inflation. Fed President Jeff Schmid warned that further cuts could fuel inflation and offer little relief to a weakening labor market.
However, optimism returned after the release of weekly jobless claims and the ADP employment report. According to the Department of Labor, jobless claims increased to 232,000 for the week ending October 18, surpassing expectations of 223,000. Additionally, ADP data showed private employers shed an average of 2,500 jobs per week in October, signaling slower job growth.
With job conditions deteriorating, analysts believe the FOMC may be more inclined to reduce rates next month.
UBS Economists Expect Another Cut
UBS economists maintain that the Federal Reserve will deliver its third rate cut of the year in December. They noted that, despite differing opinions among policymakers, current data continues to support further easing. The economists added that weaker hiring trends and rising layoffs reflect ongoing economic pressure.
They also expect the upcoming FOMC minutes to reveal internal divisions. Fed Presidents Raphael Bostic and Jeff Schmid oppose another cut, while Fed Governor Stephen Miran has argued for a larger 50-basis-point reduction.
Barkin Weighs In on Labor Market and Inflation
Richmond Fed President Tom Barkin remarked that the labor market may be softer than headline numbers suggest. He pointed to declining job growth and fewer job postings, which could strengthen the case for a December rate cut.
Barkin also acknowledged that inflation remains above the 2% target but does not appear likely to rise much further based on current trends. He did not indicate whether he supports another cut, emphasizing that more data is needed before the next meeting. It is important to note that Barkin is not a voting member of the FOMC this year.
