NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: Fed Cut Likely as Unemployment Rate Rises

December 06, 2024
Shannon Saccocia, CFA, Chief Investment Officer—Private Wealth

Today’s report meaningfully increased the odds of a Fed rate cut in December but we believe a potential 2025 pause remains possible before the Fed effects several additional cuts through the middle of next year

November’s non-farm payrolls release came in above expectations, up +227k versus the consensus estimate for +214k. The print was driven by gains in health care, leisure & hospitality, and government of +54k, +53k, and +33k, respectively; there was also a +32k surge in hiring in transportation equipment manufacturing following the resolution of the Boeing strike. A sharp decline in retail hiring of -28k weighed on the print and investors’ minds ahead of the holiday season. Not surprisingly, October’s print was revised up by +24k to +36k, and September also saw an upward revision of +32k to +255k.

The Fed, however, is likely to look most closely at the household survey. Compounding a decline in employed persons in October of -368k, November’s report reflected a drop of -355k, an indication of continued slowing in the broader labor market. Even more confounding was the increase in the unemployment rate to 4.2% as it came against the backdrop of a decline in the participation rate from 62.6% to 62.5%. Breaking it down further, the increase in unemployment broadly was driven by prime age workers who also happen to be the primary drivers of spending in the U.S. economy. With that said, stable hours worked yielded continued growth in wages, up once again by +0.4% month-over-month and +4.0% year-over-year. With wages up and prices rising at a slower pace, consumer confidence could see a boost even if hiring slows modestly.

A confluence of stronger economic data and expectations of pro-growth policies coming online in 2025 have created questions around the Fed’s December 18th decision, and Fed Chair Jerome Powell’s comments this week around the latitude to be “cautious” confirmed some of those questions. However, today’s report meaningfully increased the odds of a Fed rate cut in December. Our view has been that the Fed will cut in its upcoming meeting, but that it could be planning for a pause before effecting several additional cuts through the middle of next year.

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