The Federal Reserve is expected to lower interest rates Wednesday for the third time this year.
Data Blackout Dims the Fed’s View
Traders overwhelmingly expect a relatively small 0.25% cut, the same size as the last two cuts. But the Fed’s rate‑setting meeting in Washington is taking place in the fog of a data blackout, the result of the prolonged federal government shutdown this fall. The Bureau of Labor Statistics has released the September jobs report, but the October report was canceled altogether, and the November report remains a work in progress. The delayed November jobs report is set to be released Dec. 16.
Inflation Signals Remain Murky
Like the jobs report, October’s consumer price index was canceled, and all-important November inflation data will also arrive late, on Dec. 18. One of the few economic data releases from the government since the shutdown was a reading of the Fed’s favorite measure of inflation, personal consumption expenditures, or PCE. It showed that PCE hit 2.8% in September from a year ago, up from 2.7% in August and 2.6% in July by that same measure. But even that data was already months old. The report said consumer spending had been flat in September. Even when volatile food and energy costs are excluded, spending was up only 0.2%.
Alternative Data Points to a Slowing Labor Market
With official statistics lagging, alternative data sources have sharpened the picture of a cooling labor market. ADP’s most recent private‑sector jobs report showed small businesses shedding a staggering 120,000 positions in November, while the national net loss stood at 32,000 jobs. These figures suggest that the workforce may be shrinking, a trend that could influence the Fed’s forthcoming policy stance.
JOLTS Highlights Low‑Churn Dynamics
On Tuesday morning, the Bureau released the job openings and labor turnover survey (JOLTS). Citigroup analysts described the labor market as exhibiting very low‑churn dynamics, with the hiring rate returning to a low of 3.2% and the quit rate dropping to a new low of 1.8%. The report also hinted that the delayed October jobs data will likely contain a 65,000‑worker drag due to buyout offers extended to federal employees in the spring.
Tariff Headwinds and Supreme Court Scrutiny
Beyond domestic labor dynamics, international trade tensions loom large. President Donald Trump’s emergency‑law tariffs are under judicial scrutiny, as the Supreme Court heard oral arguments last month in a case challenging his authority to impose sweeping duties. Justices could issue an opinion at any time, adding uncertainty for firms exposed to tariff risk.
Wells Fargo’s Take on Tariffs
Wells Fargo Chairman and CEO Charlie Scharf addressed the impact of tariffs at Goldman Sachs’ U.S. Financial Services Conference in New York City. He said the bank’s business customers “continue to do quite well” but that tariffs remain a source of short‑term pressure. Scharf added, “They’re encouraged long‑term by what tariffs will mean for them to be competitive, but it has created pressure for them in the shorter‑term.” He also noted that this pressure “certainly looks like it’s held back hiring and some level of investment from businesses while they are very much focused on their own costs.”
Further Commentary from Scharf
Scharf continued, “So as opposed to really investing for growth at this point, while they have to readjust for what the tariffs mean for their cost base, they’ve been preserving margin by focusing on cost.” He also said that this pressure “certainly looks like it’s held back hiring and some level of investment from businesses while they are very much focused on their own costs.”
JPMorgan’s View on Consumer Fragility
JPMorgan Chase executive Marianne Lake also weighed in on the consumer landscape during the same conference. She said, “I would characterize the environment as being a little bit more fragile.” Lake, who heads the bank’s consumer and community banking division, noted that while data looks good and consumers and small businesses appear resilient, there is “less capacity to weather an incremental stress.”
Fed Committee’s Dilemma
With these data gaps, members of the Fed’s Open Market Committee face a daunting task. They must weigh a labor market that appears to be cooling, yet still exhibits stubborn inflation, against the backdrop of tariff‑related uncertainty. The committee’s decision will shape the trajectory of the economy for months to come, as businesses and households navigate the evolving policy environment.
Key Takeaways
- The Fed is poised for a 0.25% rate cut amid a data blackout.
- Employment figures point to a slowing labor market, with ADP reporting a 120,000‑job loss in small firms and a 32,000 net decline nationwide.
- Tariff pressures and pending Supreme Court rulings add uncertainty to the business climate.
Closing
The meeting will take place in Washington, where committee members will review the limited data set and decide on policy. With the absence of fresh employment and inflation figures, the committee will rely heavily on alternative indicators such as ADP and JOLTS. The decision will be closely watched by markets, as it may influence borrowing costs and investment decisions. The outcome will inform expectations for the Fed’s next rate change.
The Fed’s Wednesday decision will be watched closely by markets and businesses as it shapes the economic environment.
