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Investing.com -- Investor expectations for a December rate cut held near recent lows after long-delayed U.S. labor data delivered an uneven snapshot of economic momentum.
The September nonfarm payrolls report — the first released since the government shutdown froze federal statistics for weeks — showed headline strength but underlying softness, reinforcing the view that the Federal Reserve may have limited room to ease further.
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The economy added 119,000 jobs in September, more than double the 50,000 economists had expected. But the unemployment rate rose to 4.4% from 4.3%, its highest level since October 2021.
The conflicting signals left markets cautious, with traders maintaining a low probability of a December move. Those odds nudged higher on Friday after New York Fed President John Williams indicated he could support a cut at the next meeting.
Williams said he still saw “room for a further adjustment in the near term” to bring policy closer to neutral. His comments injected some dovishness into market pricing but did not materially shift expectations for the full rate path.
No more cuts under Powell, says BofA
Bank of America economist Shruti Mishra sees the broader labor backdrop as the key determinant. The bank argues that much of this year’s labor-market softness has stemmed from disruptions to both supply and demand. Payrolls cooled over the summer, and the unemployment rate edged higher, but Mishra stresses that the jobless rate remains historically low.
In its latest analysis, the bank highlights a sharp drop in labor supply ahead, driven by much tighter immigration policy. Mishra estimates net immigration will fall to roughly 380,000 over the coming year — far below the 2.1 million average during 2020–23. That shortfall amounts to a labor-supply shock of around 90,000 workers per month relative to recent norms.
With fewer workers entering the labor force, Mishra expects the breakeven pace of job growth — the level needed to keep unemployment steady — to plunge to about 20,000 per month. That dynamic, Mishra says, will keep the unemployment rate relatively stable even as payroll gains slow.
BofA forecasts only a modest rise in unemployment, peaking near 4.5% early next year, and argues that the labor market will remain close to full employment.
As a result, the bank sees “limited scope for the Fed to cut rates further,” adding that sticky inflation reinforces its view that “there won’t be any more rate cuts under Chair Powell.”