Economists Expect Another Fed Rate Cut as Labor Market Shows Signs of Strain

Highlights:

• 80% of economists in a Reuters poll expect the U.S. Federal Reserve to cut interest rates by another 25 basis points next month, taking the policy range to 3.50%–3.75% at the time of writing.
• A prolonged government shutdown has delayed key economic data, deepening divisions within the FOMC over whether further rate cuts are necessary.
• Inflation remains above the Fed’s 2% target for more than four years, while the labor market is cooling gradually but not showing signs of a sharp collapse.

A large majority of economists now expect the U.S. Federal Reserve to cut interest rates again next month, even as Federal Open Market Committee (FOMC) members remain divided on the next move.

In a new Reuters poll, 80% of economists surveyed anticipate a 25-basis-point cut on December 10, bringing the federal funds rate to 3.50%–3.75% at the time of writing. This would mark the third consecutive reduction as policymakers try to cushion a softening labor market during an extended government shutdown.

Fed Officials Split, Data Uncertain Amid Shutdown

Despite growing market conviction, Fed policymakers are far from unified. Chair Jerome Powell has warned that a December cut is “not guaranteed,” especially with the shutdown delaying key economic indicators. The lack of fresh data has intensified debate inside the FOMC, with some members concerned that inflation pressures could re-accelerate if the Fed loosens too aggressively. Economists at UBS say the labor market’s subtle weakening continues to justify another cut, though this outlook could shift quickly as new data becomes available once the government reopens.

Inflation Still Above Target, Raising Credibility Concerns

The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Index, has stayed above the 2% target for more than four years—its longest stretch since the mid-1990s. Economists expect it to remain above target through 2027, raising questions about the central bank’s credibility in returning inflation to its mandate. Analysts at Vanguard caution that tariff-driven inflation may prove more persistent than previously assumed.

Labor Market Cooling, but Not Collapsing

While private-sector data has shown job losses during the shutdown, nearly 70% of economists believe employment conditions have generally held steady. The U.S. unemployment rate, last reported at 4.3%, is expected to rise only slightly to an average of 4.5% next year. Economists say the labor market is easing—but far from deteriorating rapidly—supporting expectations for one more measured rate cut in the near term.

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