Fed likely to pause in December, says economist

Higher for a Bit Longer It’s a close call, but based on the data at hand, I’m sticking with my view: after delivering two rate cuts in its last two meetings, the Fed is likely to pause in December. Inflation remains more than 100 bps above the Fed's 2% target given the recent firming in CPI that has kept inflation hovering around 3%. Looking forward, in 2026, I expect a slow drift lower given many dynamics currently at play. With today’s solid jobs report, the Fed has little urgency to ease further. Employment isn’t softening as much as earlier data suggested, giving policymakers more confidence to hold steady. This morning’s delayed September BLS report surprised the upside: +119k jobs versus expectations of +51k, pushing the 3-month average up to +62k from +18k. Gains were broad-based across goods and services, with strength in lower-wage sectors such as Education & Health and Leisure & Hospitality, as well as an uptick in Construction. Meanwhile, federal employment continues to decline. The October jobs report has been eliminated given the government shutdown, while the November report won’t be released until after the December 10 FOMC meeting. That leaves September as the last official employment datapoint the Fed can rely on, though they will, of course, incorporate market surveys like ADP. With no new inflation prints (CPI, PPI, PCE) arriving before the meeting, the Fed will be operating with a thinner data set that helps guide their decisions.