One last hurrah for 2025

The Fed wrapped up its 2025 meeting cycle with one final 25 basis-point cut, potentially signaling the end to the “insurance” cuts referenced a few months ago. Both the statement and Chair Jerome Powell’s press conference suggested the Federal Open Market Committee (FOMC) is comfortable pausing for now. Powell noted the move, “should help stabilize the labor market while allowing inflation to resume its downward trend towards two percent once the effects of tariffs have passed through.”

Looking ahead to 2026, there should be no shortage of headlines. A new Fed chair will be appointed by President Trump, who has made his preference for lower rates well known. The latest “Dot Plot” of future rates shows a median forecast of just one cut in 2026, though estimates range widely from six cuts to even a rate hike. Though last week’s decision went as expected, it was not unanimous, either — there were two dissents for no rate action and one dissent for a larger cut. This all suggests it could be a noisy meeting room next year.

On the data front, initial jobless claims increased sharply to 236,000 last week, from 192,000 prior, though Thanksgiving could have caused some distortion. Averaging the last two weeks gives 214,000 — a number considered in normal territory. Despite that, Powell still cautioned of a labor market cooling too much. He believes job growth numbers might have been overstated from survey mechanics at the Bureau of Labor Statistics and that “a world where job creation is negative” is a situation the FOMC needs to watch “very carefully.”