(Rate Cuts Good - Jobs/Employment Overrated)
----------------------Opinion: The Fed will be forced into deep rate cuts in 2026 — boosting gold and breaking the dollar
The Fed will be forced into deep rate cuts — boosting gold and breaking the dollar
The next Fed chair will grapple with a deteriorating U.S. job market and slower economic growth.
The next Fed chair will grapple with a deteriorating U.S. job market and slower economic growth
The U.S. Federal Reserve will likely cut rates more this year than both central bankers and financial markets expect.
This is largely because the U.S. labor market continues to deteriorate. While job openings appeared to stabilize in October, quits have fallen, pointing to ongoing loosening. Wage growth tells the same story.
The November employment report reinforced this view. Job growth was positive, but gains were concentrated in education and health services. More cyclical sectors showed minimal growth. Crucially, the unemployment rate rose to 4.6% from 4.4%, while the U-6 underemployment rate increased to 8.7% from 8.0%.
These data validate the Fed’s recent “insurance” cuts. They do not seal the case for a January move, but they materially lower the bar for additional easing. Job growth remains modest and subject to large revisions, while private-sector momentum is weak.
Importantly, the data also help resolve the key macro debate of recent months: Whether the job slowdown is demand-driven or supply-driven. Rising unemployment, cooling wages, falling quits and weakening sentiment among workers and firms all point toward weaker labor demand rather than structural labor shortages.
While the labor market has not collapsed, it is effectively at a standstill and shows no signs of acceleration. With the Fed’s own unemployment projection at 4.5% for 2025, any further deceleration would justify more easing than markets currently price.
Read: U.S. on verge of unemployment surge that forces Fed to slash rates, Wall Street veteran says
Rumblings and dissent
At its December 2025 meeting, the Fed cut interest rates by 25 basis points (0.25 percentage points), bringing its policy range to 3.5%-3.75%. The decision once again revealed divisions within the committee. Fed governor Stephen Miran favored a larger 50-basis-point cut, while Presidents Jeffrey Schmid and Austan Goolsbee voted for no change — with Schmid dissenting for a second consecutive meeting.The central bank’s “dot plot” reinforced those divisions. In addition to the formal dissents, four participants registered so-called “soft” dissents, indicating that, while they may not have been voters, they believed policy should have remained unchanged. Looking ahead, the dots point to just one additional rate cut in 2026.
That projection rests on two assumptions embedded in the Fed’s Summary of Economic Projections: Stronger growth and lower unemployment next year. While possible, this is not the most likely outcome. Before answering why, it is worth assessing where monetary policy stands.
, lol