At the October meeting, the Federal Open Market Committee (FOMC) delivered its second consecutive 25 bp rate cut, lowering the federal funds range to 3.75%–4.00%. The move, approved 10–2, was accompanied by a cautious tone. Fed Chair Jerome Powell emphasized that another reduction at the next meeting is “not a foregone conclusion,” noting “strongly differing views” among officials on December’s decision. One Fed governor dissented in favor of a larger 50 bp cut, while another preferred no cut at all. Policymakers are clearly debating how far and fast to ease without reigniting inflation.
Recent communications underscore growing concern over the labor market – the Fed’s October statement flagged that “downside risks to employment” have increased – even as inflation remains above target. Headline consumer prices are rising about 3.0% year-over-year (as of September), still above the 2% goal, so the inflation fight is not fully over. This tension between still-elevated inflation and a softening jobs outlook is central to the Fed’s outlook heading into late 2025. Notably, the Fed also decided to halt its balance sheet runoff by December 1, signaling that broader financial conditions may soon stop tightening.
Labor market conditions continue to soften gradually. After bottoming around 3.4%–3.5% last year, the unemployment rate has crept up into the mid-4% range – roughly 4.4% as of the latest reading, the highest in about two years. Even so, joblessness remains low by historical standards (the 50-year average is roughly 6.1%). Hiring has downshifted sharply, with monthly payroll growth stalling and private estimates showing employment flat to slightly down in September. Over the past four months, job gains have averaged under 25,000 – including an outright loss in June – marking the weakest stretch since 2009.
An uptick in layoffs and slower hiring indicates a looser labor market. Wage pressures are moderating, with unit labor costs rising just 1.0% in Q2 after a 6.9% surge in Q1 – a welcome sign for inflation. Consumer confidence has dipped only modestly, with the Conference Board’s October index at 94.6 versus 95.6 in September, and spending remains resilient thanks to improving real incomes. As 2025 draws to a close, the U.S. labor market is rebalancing toward a more sustainable pace, but overall economic activity remains surprisingly steady.
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