A flood of delayed U.S. economic data is set to arrive over the coming weeks as the government reopens from its longest shutdown on record. Yet, a growing number of Federal Reserve officials appear unconvinced the figures will reveal enough weakness to justify another interest rate cut this year.
After more than 40 days without fresh official data, policymakers are leaning toward the view that the labour market remains resilient, financial conditions are loose, and inflation is still running above target — developments that collectively weaken the case for further easing. Unless the incoming data contain major surprises, economists say the odds of a third rate cut this year are fading rapidly.
Even though futures markets still price in a two-thirds chance of a December cut, analysts warn those expectations may be overly optimistic.
Centrist Voices Urge Caution
While some Fed officials — notably Stephen Miran, a former government adviser and vocal advocate of deeper rate reductions — continue to press for more aggressive easing, centrist members are signalling restraint.
“It’s very important that we tread with caution here,” said St. Louis Fed president Alberto Musalem on Monday (Nov 10). “There is limited room to ease policy further without becoming overly accommodative.”
Fed vice-chair Philip Jefferson echoed that view last week, noting that it “makes sense to proceed slowly as we approach the neutral rate.” Both are considered pivotal centrists on the Federal Open Market Committee (FOMC), and their latest remarks suggest a preference to pause rate cuts until 2025.
The new year will also bring leadership changes to the FOMC, as Chair Jerome Powell’s term expires in May, Governor Lisa Cook faces a legal review in January, and Miran’s temporary appointment comes up for consideration. The 2026 committee lineup will feature prominent hawks, including Dallas Fed’s Lorie Logan and Cleveland Fed’s Beth Hammack, tempering expectations for further dovish shifts.
“Pause” Momentum Builds
According to SGH Macro Advisors’ Fed watcher Tim Duy, the case for a December pause rests on four factors: stubbornly high inflation, a still-strong labour market, supportive financial conditions, and the policy space gained from earlier cuts. “We can see the centrists who supported the doves with the first two cuts shifting to support the hawks with a skip,” he wrote.
Few analysts dispute that inflation remains above target and that financial conditions are stimulative. The key uncertainty lies in the labour market, whose official readings have been disrupted by the data blackout.
Labour Market Holding Steady
Alternative indicators suggest no dramatic weakening in employment. Outplacement firm Challenger, Gray & Christmas reported an uptick in layoffs in October, but private-sector payroll growth and state-level jobless claims indicate overall stability.
Haver Analytics, aggregating state data, found that new applications for unemployment benefits have risen only marginally, implying steady labour conditions through October. Analysts at JPMorgan and Citi reached similar conclusions.
Researchers at the St. Louis Fed, using real-time data from payroll and scheduling firm Homebase, reported that while hiring and separation rates have eased, net job creation remains near zero. “These patterns are consistent with moderating employment,” they noted, though it remains “too early to tell whether this is a healthy cooling or a more concerning deterioration.”
Decision Time for 2025
The mixed signals have left Fed policymakers divided on whether the softening labour data warrant further easing or justify a pause for the rest of 2025.
As one senior Fed observer put it: “The jury is still out — but the burden of proof for more cuts now lies squarely with the data.”
