Fed Torn Between Inflation Control and Weakening Jobs Market in December Decision

The U.S. Federal Reserve is poised to cut interest rates by 25 basis points in December, according to a Reuters poll of 84 economists out of 105, a majority that has grown slightly since last month's poll Reuters poll. The anticipated reduction would mark the third consecutive rate cut, bringing the benchmark rate to a range of 3.50%-3.75%. However, internal divisions among Federal Open Market Committee (FOMC) members and uncertainty over economic data due to the government shutdown have introduced volatility into the outlook Fortune analysis.

The decision hinges on the labor market, which has shown signs of softness. Private-sector data, such as ADP's recent report showing an average of 11,250 job losses per week in late October, has fueled concerns about weakening employment trends Fortune analysis. While official Bureau of Labor Statistics (BLS) data remains unavailable due to the shutdown, the Senate approved a temporary funding bill to extend government operations until January 30, 2026, easing short-term data gaps LookonChain analysis. Economists warn, however, that the Fed's dual mandate-balancing inflation control with employment stability-remains fraught. Inflation, as measured by the Fed's preferred Personal Consumption Expenditures (PCE) index, has exceeded its 2% target for over four years, complicating the case for further easing Reuters poll.

Market expectations for a December cut have waned slightly, with investors now pricing in a 63% probability, down from 92% a month ago Fortune analysis. This shift reflects cautious optimism about the labor market's resilience and concerns about inflationary pressures from tariffs and supply-side disruptions LookonChain analysis. Fed Chair Jerome Powell has emphasized a "wait-and-see" approach, acknowledging the need for more data before committing to a rate reduction Fortune analysis. Meanwhile, corporate earnings resilience and the prospect of a government shutdown resolution have provided temporary support to risk assets, including Bitcoin, which has stabilized near $103,000 LookonChain analysis.

The path forward remains uncertain. Nearly half of economists surveyed still expect the fed funds rate to drop to 3.25%-3.50% by next quarter, though there is no consensus on the rate's trajectory by year-end 2026 Reuters poll. FOMC members, including newly appointed Stephen Miran, have advocated for larger cuts, while hawkish voices like St. Louis Fed President Alberto Musalem caution against over-accommodative policy Fortune analysis. The Fed's challenge lies in navigating a fragile economic environment where growth is projected to slow to 1.0% in the current quarter before stabilizing at 1.8% annually through 2027 Reuters poll.

As the December meeting approaches, markets will closely watch for Powell's ability to unify the FOMC amid divergent views. A delayed shutdown resolution or unexpected inflation spikes could further cloud the outlook, but for now, the December cut remains the most likely scenario Fortune analysis.