An unexpected rise in the U.S. unemployment rate on Tuesday has renewed pressure on the Federal Reserve to support the labour market through lower interest rates.
Concerned about signs of weakening employment—and operating with limited and delayed data during the recent government shutdown—Fed officials last week cut the central bank’s benchmark interest rate for the third consecutive meeting. Tuesday’s jobs report did little to ease those concerns, showing the unemployment rate climbed to 4.6% in November, up from 4.4% in September, marking its highest level since 2021.
What It Means for the Economy
A softening job market increases the likelihood that the Fed will eventually lower borrowing costs further, a move that could help sustain economic growth and prevent a sharper rise in unemployment.
Policymakers remain divided as they navigate the Fed’s dual mandate of price stability and maximum employment—a balancing act complicated by stubborn inflation and cooling labour conditions. One camp argues interest rates should stay higher for longer to bring inflation back toward the Fed’s 2% target, while another favors faster rate cuts to avoid deeper job losses. By adjusting the federal funds rate, the Fed can either restrain spending with restrictive policy or stimulate activity with easier financial conditions.
Weak Jobs Data Keeps Rate-Cut Debate Alive
The latest employment report strengthened the case for rate-cut advocates, though it fell short of settling the debate. The Fed will receive another jobs report and several key inflation readings before its next policy meeting—data that could ultimately sway decision-making.
Still, officials may treat the figures cautiously. The government shutdown in October and November disrupted the Bureau of Labor Statistics’ data collection, potentially adding noise to the results.
As of Tuesday, financial markets were pricing in a 24% chance of a rate cut in January, with expectations for one additional cut sometime in 2026, according to the CME Group’s FedWatch tool.
