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          On the Minds of Investors

          Have recent data strengthened the case for a January rate cut?

          BH
          Brandon Hall

          Research Analyst

          Published: 12/19/2025
          Investors are pricing in approximately a 20% chance of a January rate cut and ~60 basis points of easing in 2026. On a brighter note, these reports mark the last of a batch tainted by the government shutdown.

          Just in time for the holidays, investors received the last pieces of major monthly economic data delayed by the government shutdown - the November jobs and CPI reports. These reports were highly anticipated and expected to provide clues about what the Federal Reserve might do at its first meeting in the new year. However, they were also laden with statistical quirks and data issues caused by the government shutdown, limiting their usefulness.

          On Jobs…

          The November jobs report was gloomy. The U.S. economy lost 41k jobs across October and November, although this was entirely due to a 162k decline in federal employment in October as employees who took the Trump Admin’s deferred resignation program rolled off payrolls. Private payrolls rose by a better-than-expected 121k across the same period, but these gains were concentrated in health care and social assistance. The unemployment rate rose to a four-year high of 4.6%, and now sits above the median FOMC forecast for year-end. But with the government shutdown and Thanksgiving holiday complicating the data collection process, the BLS noted that “November estimates are associated with slightly higher than usual standard errors.” These figures could be revised in the months ahead.  Still, the unemployment rate remains on an upward trend. Elsewhere, wages rose at their slowest annual pace since May 2021.

          On Inflation…

          The November CPI report came in much cooler than expected, with headline and core inflation rising 2.7% and 2.6% y/y, respectively, after rising by 3.0% in September. Softer inflation is certainly a good thing, but some data collection issues, such as the BLS opting to hold prices fixed where October data were unavailable, or the later November collection period potentially capturing some holiday price cuts, may have biased the data lower. For example, the data imply that both measures rose by just 0.1% m/m in October and November, which seems abnormal given they averaged 0.3% gains per month in 3Q.

          On the Fed…

          For those who think these prints clear the runway for a January rate cut, not so fast. Markets have largely written off these reports given the data issues, and rate cut expectations haven’t budged much since the beginning of the week. Investors are pricing in approximately a 20% chance of a January rate cut and ~60 basis points of easing in 2026. On a brighter note, these reports mark the last of a batch tainted by the government shutdown. The December jobs and CPI reports should provide a clearer view of recent inflation and employment dynamics, and better clues about the path forward for monetary policy.

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