Rising Unemployment Augurs More Rate Cuts in 2026
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Economic Data & Analysis

Rising Unemployment Augurs More Rate Cuts in 2026

16 December 2025 / Brief

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Trusted Insights for What’s Ahead®

  • Shutdown-related data volatility aside, the unemployment rate rise to a new business cycle high will likely mean more interest rate cuts in 2026.

Trusted Insights for What’s Ahead®

  • Shutdown-related data volatility aside, the unemployment rate rise to a new business cycle high will likely mean more interest rate cuts in 2026.

  • The joint October-November employment situation report incorporated the federal government shutdown impact, the deferred resignation option layoffs, and lower household survey response rates -- the factors which Chair Powell suggested will make the Fed look at the data with a “skeptical eye”.
  • The Fed will have to wait for a cleaner December employment situation report released on January 9th to decide on whether to cut rates at the January 28th FOMC meeting. If the unemployment rate continues to rise, the Fed may cut again in January. We keep our projection for two rate cuts in H1 2026.
  • With net hiring concentrated in healthcare and social assistance, more cyclical industries’ weakness suggests downside labor market risks.
  • Further normalization in wage growth, reflected in lower growth in average hourly earnings, dovetailing the latest Employment Cost Index (ECI) trend, suggests the Fed will be

Author

Yelena Shulyatyeva

Yelena Shulyatyeva

Senior US Economist

Read BioYelena Shulyatyeva

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