New Jobs Data Fails to Resolve Federal Reserve’s Ongoing Rate Cut Debate

Fresh employment figures land with a thud—doing exactly nothing to settle the central bank's biggest headache.

The Data That Changed Nothing

Markets hung on every decimal point, parsing payrolls and participation rates for clues. They got noise. The report delivered ambiguity wrapped in bureaucracy—a classic Fed special.

Powell's Perpetual Pivot Puzzle

Chairman Jerome Powell faces his own version of Schrödinger's cat: rates are both too high for growth and too low for inflation until the box opens. Every speech becomes a semantic minefield, where 'data-dependent' means 'we're waiting for a sign from the heavens.'

Market Whiplash in Real Time

Traders now parse Fed statements like medieval monks deciphering prophecies. A single dropped syllable sends algorithms into convulsions. Volatility isn't a side effect—it's the product.

The whole spectacle proves Wall Street's oldest truth: economists exist to make astrologers look accurate. Meanwhile, the rest of us just want to know if our mortgages will crush us next quarter.

Key Takeaways

• Fed officials took opposite views over how the Fed should respond to rising unemployment and inflation.
  
• One prominent Fed official said the central bank should cut interest rates to boost the job market, and another said they should keep rates higher for longer to fight inflation.
  
• Fed officials have been divided about strategy as the government shutdown delayed key economic reports, and the release of belated jobs data Tuesday didn't resolve the issue.
  

Fed officials have been divided about whether to boost the job market by further lowering interest rates, and a surprise uptick in the unemployment rate Tuesday wasn't enough to resolve the debate. 

Several Fed policymakers spoke in the wake of Tuesday's belated report from the Bureau of Labor Statistics, which showed the unemployment rate unexpectedly ROSE to a four-year high in November. As they have been for months, the officials were divided about whether the Fed should keep interest rates higher for longer, prioritizing the fight against inflation, or continue lowering them to prevent a surge of unemployment.

The contrasting viewpoints reflected the central bank's difficult position. Members of the policy committee are trying to fulfill its dual mandate of keeping inflation and unemployment low at a time when both key economic metrics are headed in the wrong direction.

The Fed can only address one of those goals at a time with monetary policy: raising rates to cool inflation risks slowing the economy too much and spurring unemployment. In contrast, lower rates can help job creation but risk stoking inflation. Last week, the Fed cut its key interest rate by a quarter-point, the third cut in as many meetings, bringing it to a range of 3.5% to 3.75%.

What This Means For The Economy

Fed officials are still divided over strategy, making interest rate policy harder to predict.

The government shutdown delayed key reports on inflation and job creation that the Fed relies on to make those decisions. The belated release of job data Tuesday, however, seems not to have cleared up the disagreement.

On Wednesday, Fed Governor Christopher Waller said the labor market is in danger, and the Fed should lower rates by up to an additional percentage point. Speaking at the Yale CEO Summit, Waller said the official statistics on job growth are likely too optimistic, and that the economy is actually creating about 60,000 fewer jobs each month than the BLS says, according to the Fed's own estimates.

 "We're close to zero job growth," Waller said. "That's not a healthy labor market."

Waller is on the shortlist of possible replacements for Federal Reserve Chair Jerome Powell when his term ends in May. President Donald TRUMP has said he will only consider nominating candidates who are willing to cut interest rates.

Related Education

Taking the opposite view, Atlanta Fed president Raphael Bostic said inflation is the greater priority and the Fed should not cut interest rates.

In a blog post Tuesday, Bostic noted inflation has been higher than the Fed's goal of a 2% annual rate since 2021, and that it was showing no signs of cooling all the way down to that level anytime soon.

"If underlying inflationary forces linger for many months to come, I am concerned that the public and price setters will eventually doubt that the FOMC will hit the inflation target in any reasonable time frame," Bostic wrote. "Will the public lose faith after five years of above-target inflation? Six years?"

Bostic, who was not a voter on the Federal Open Market Committee, is retiring in February. (The Fed's policy committee has four seats that rotate yearly among 11 regional Fed presidents.)