Calling an End to Fed Rate Cuts Is Premature
A pickup in unemployment and the worsening outlook for residential construction argue for more policy easing in 2025.
What next?
Photographer: Kent Nishimura/Getty Images
The Federal Reserve is set to cut interest rates again this week, yet the focus of investors is on whether this policy-easing cycle is almost over. The market is currently pricing in just two quarter-percentage-point cuts for all of 2025, four fewer than just three months ago. It’s not clear why investors are so confident that the Fed’s job is nearly done, with the unemployment rate back near its highest level of the year and the outlook for residential construction darkening.
The reality is that downside risks to employment and even inflation are more pressing than the upside risks heading into 2025, despite the stock market hitting new records. All it would take is one soft jobs report to push the unemployment rate to a new cycle high and convince investors that the labor market remains an area of concern.