A modest drop in U.S. unemployment has reduced the likelihood that the Federal Reserve will cut interest rates in the near term, potentially signaling that Federal Reserve Chairman Jerome Powell has made his last rate adjustment before his term ends in May.
The Labor Department reported that unemployment fell to 4.4% in December, down from 4.5% in November. Employers added 50,000 jobs, slightly below the 60,000 expected, bringing total job growth in 2025 to 548,000, compared with roughly 2 million in 2024.
The drop should “douse the Fed's recent urgency to backstop a weakening labor market,” said Olu Sonola, head of U.S. economic research at Fitch Ratings.
“That said, the weak headline job-growth story can’t be brushed aside. Hiring is still stuck in stall speed, and job growth in cyclical parts of the economy isn’t sending a comforting signal.”
The Fed cut its benchmark overnight interest rate by 75 basis points last year, with the implementation of three separate 25‑basis‑point moves. After December’s cut, which brought rates down to a range of 3.5% to 3.75%, Powell said the central bank was well-positioned to wait to see how the economy evolves.
December’s data suggest the central bank could afford to proceed carefully with further reductions, as it navigates the tricky task of balancing the risks of a weakening labor market with inflation that remains above the 2% target. Richmond Fed President Thomas Barkin noted that firms’ reluctance to hire reflects both economic uncertainty and higher productivity, which allows companies to operate with fewer employees, according to Reuters.
Traders of rate futures tied to the Fed’s policy rate now see just a 44% chance of a rate cut by April, down from roughly even odds previously. Expectations for a resumption of rate cuts have shifted to June or later.
Powell’s successor is scheduled to be announced by President Trump this month. Kevin A. Hassett, Trump’s top economic adviser, is seen as the frontrunner, but the president has also met with Kevin M. Warsh, a former Fed governor who almost got the job in the president’s first administration and Christopher J. Waller, a current Fed governor, according to the New York Times.
The Fed gathers for its first meeting of the year between Jan. 27–28. A new set of presidents from some of the 12 regional reserve banks will join the 12-person Federal Open Market Committee, which votes on policy decisions. They are Beth M. Hammack of the Cleveland Fed, Lorie K. Logan of the Dallas Fed, Neel T. Kashkari of the Minneapolis Fed and Anna Paulson of the Philadelphia Fed, according to The New York Times.
That conveyed little urgency to deliver another reduction, the news outlet further reported. Hammack and Logan have previously indicated that they did not support all of the Fed’s rate cuts last year, while Kashkari recently said that the central bank was close to the point where it did not need to cut further. Plus Paulson, who has expressed concerns about the labor market, indicated that the Fed did not need to hurry for more reductions.
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