Unemployment and the Federal Reserve
Unemployment is the key factor in terms of motivating the Federal Reserve to cut rates. If the labor market softens, which it appears to be, it means that the Federal Reserve will lean towards an interest rate easing policy.
Right now, the data is quite mixed because of the government shut down. We don't know, for example, if the unemployment rate truly is rising because the data is so delayed. We will know better over the course of the next two months.
The Federal Reserve is going to wait and see before they make cuts in rates and if the economy truly is softening as reflected by the jobs market, we think there's probably a reasonable chance they cut one more time. Still, that’s not a certainty until inflation rises and the labor market softens more than it already has.
In this sort of uncertain environment, it's important that you have assets distributed among a variety of sectors. It's also wise to make sure fixed duration levels are constantly monitored, which is something that we do on a regular basis at DWM.
Any questions about this information please do let me know.
You will find the article below interesting as it provides additional perspective on how recent labor market data is influencing Federal Reserve policy discussions.
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"An unexpected jump in the unemployment rate Tuesday kept pressure on the Federal Reserve to rescue the job market by cutting interest rates.
Fed officials—concerned about the health of the labor market and left with limited data to go on during the government shutdown—opted to cut the central bank's key interest rate last week for the third time in as many meetings.
Tuesday's jobs report kept those worries alive when it showed the unemployment rate rose to 4.6% in November from 4.4% in September, reaching a fresh high since 2021.
Fed officials have been divided over how best to pursue the central bank's dual mandate from Congress to keep inflation low and employment high, at a time when the economy isn't cooperating with either objective.
One faction prefers to keep interest rates higher for longer to crush inflation that's still over the Fed's goal of a 2% annual rate. Another prefers faster rate cuts to prevent unemployment from rising severely. The federal funds rate influences borrowing costs on short-term loans, allowing the central bank to discourage spending with high, "restrictive" rates or encourage it with lower ones.
Tuesday's job market report gave ammunition to the rate cut advocates, although it didn't settle the debate.”
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