Following the release of the November jobs report, Wall Street has shown increased confidence in the likelihood of the Federal Reserve implementing another interest rate cut this month. Prior to the report's unveiling, investors were placing their bets on a quarter-point rate cut at approximately 72%, as indicated by the futures market. However, these odds surged to around 87% shortly after the stock market commenced trading.
The Federal Reserve appears to be poised to execute the third rate cut of the year during its upcoming meeting on December 17-18. This decision is primarily driven by the persistent influence of elevated borrowing costs on the economy, alongside the belief that inflation is anticipated to decelerate further, despite recent inflation data slightly surpassing expectations.
When the Fed initiated rate cuts in September, Fed Chair Jerome Powell emphasized the importance of safeguarding the labor market against any deterioration. There have been indications of underlying fragility, such as the notable concentration of job growth observed over the past year.
Chief economist at Nationwide, Kathy Bostjancic, highlighted that the growth in private sector jobs, excluding health care and education, has predominantly stemmed from the hospitality sector, while other cyclical sectors have not contributed significantly to net job gains. This concentration of job growth raises concerns, despite the positive outlook portrayed by the overall employment figures.
Additional vulnerabilities in the job market include a consistent rise in unemployment rates over the past year, although the current rate remains historically low, and prolonged periods of joblessness, as evidenced by data on unemployment claims.
