On the other hand, the labor market is on a knife edge. The unemployment rate has held relatively steady at around 4% thanks to a shrinking pool of talent, prompted by Trump’s immigration policy and a wave of retirees. However, job openings are fading fast, suggesting a moderate uptick in layoffs could tip the scales with more weight than usual.
Digging into the data, companies with between one and 19 employees axed 46,000 roles, while those with 20 to 49 employees cut 74,000. Conversely, companies with 500-plus employees added 39,000 employees.
Wall Street won’t necessarily be rubbing its hands over the prospect of layoffs, but it will welcome a weaker macro outlook if it means that a rate cut will deliver a new round of cheaper money.
“Data on the U.S. labor market continues to reinforce the case for easing, while inflation data shouldn’t stand in the way,” echoed Mark Haefele, UBS Global Wealth Management’s CIO. “Inflationary pressures appear to be moderating, as the ISM Prices Paid index fell to 65.4 in November, down from 70 in October, marking a seven-month low. Finally, although inflation is running around 1pp above the Fed’s 2% target, the personal consumption expenditures index—the Fed’s favorite measure—should show on Friday that price pressures are not intensifying.”
“Signs of weakness in the incoming lower-tier U.S. labor market data have been consistent with the market coalescing around a December Fed cut,” chimed Goldman Sachs in a note to clients this morning.
But the FOMC meeting next week won’t be plain sailing. In BofA’s opinion, Chair Jerome Powell will preside over “the most divided committee in recent memory.” Trump appointee Stephen Miran, for example, will likely once again advocate for a 50 basis point cut—in line with the reductions the White House has been lobbying for all year. A number of members are also expected to push for a hold, while the remaining majority will opt for a more minor 25 basis point revision.
“Turning to Powell’s press conference, we think he will attempt to strike a hawkish tone to placate the hawks,” BofA added. “We are skeptical this would work. Powell’s hawkish remarks in July and October jolted markets, but they didn’t stop the Fed from cutting. Investors might be wary of getting head-faked for a third time.”
