Analysts suggest that a plethora of private-sector economic data released this week is poised to increase the probability of a December interest rate cut by the Federal Reserve, rendering it “more likely than not.” On Thursday, data  revealed that U.S. companies disclosed 153,074 job cuts in October, a figure that is nearly three times that of September. For the year to date, layoffs have exceeded one million. Meanwhile, figures from the Bank of America Institute, which are tied to customer-deposit data, did not indicate that the labor market had decelerated significantly compared to September — however, there had been a discernible cooling since the spring. Earlier this week, a separate report indicated that private firms in the U.S. added 42,000 roles last month, exceeding estimates and recovering from a revised loss of 29,000 in September and a further decline in August.

The readings, which have gained further importance amid a persistent official data blackout due to an extended U.S. government shutdown, illustrate a scenario in the American labor market that appears to be experiencing a decline in momentum. While a comprehensive immigration crackdown is expected to maintain the unemployment rate at historically low levels, other indicators have implied that hiring activity is sluggish — indicating that individuals currently without employment may encounter significant challenges in securing new jobs. “[E]conomic data availability remains limited but we view the data in hand as keeping a December rate cut from the Fed more likely than not,” stated analysts, including Michael Gapen and Sam Coffin in a note.

Market pricing of Fed policy exhibited notable volatility this week as investors assessed the implications of a weakening labor market in contrast to relatively robust activity data. In October, one indicator of activity within the services sector experienced an uptick, suggesting robustness in a segment that plays a vital role in the U.S. economy. However, a metric reflecting prices paid increased to its highest point since 2022. The Federal Reserve reduced interest rates by 25 basis points during its October policy meeting, aiming to mitigate potential further weakening in the labor market. However, Fed Chair Jerome Powell indicated that another reduction this year is not assured, particularly as some officials voiced concerns about the potential for reigniting inflationary pressures.

In principle, reductions in interest rates may stimulate investment and employment, though this comes with the potential consequence of accelerating inflationary pressures. Markets are indicating approximately a two-in-three probability that the Federal Reserve will implement another rate cut during its upcoming two-day meeting on December 9-10, as per reports. The likelihood that the central bank will choose to maintain borrowing costs within a target range of 3.75% to 4% stands at approximately 33%.