When the Federal Reserve Open Market Committee (FOMC) convenes Wednesday, its members are expected to cut interest rates despite inflation still above their target and amid concerns over a labor market that is softening, according to a report by Fox Business.
The markets and many analysts expect a 25-basis-point interest rate cut, Fox said. It would be their third straight cut. The network said that the market’s expectations for a rate cut have shifted wildly amid those concerns and disruptions in the release of recent economic data.
According to Fox, the CME FedWatch tool showed a 30% probability of a rate cut on Nov. 19, down from 98% a month before. Those odds have rebounded to 87% as of Dec. 5 amid soft labor market data.
According to Fox, minutes from the FOMC’s November meeting showed deep divides among policymakers over whether a rate cut would be appropriate in December as policymakers seek to gradually bring interest rates to a neutral level. Some expressed concerns about the impact that cutting rates at this time could have on inflation.
Layoffs At Highest Point Since COVID-19 Pandemic
Fox said that a report from global outplacement firm Challenger, Gray & Christmas found that layoffs announced in 2025 through the month of November totaled 1,170,821. That’s the highest level for a comparable period since 2020, when there were 2,227,725 cuts announced during the COVID-19 pandemic, Fox reported.
Also, ADP’s jobs report showed the private sector unexpectedly lost 32,000 jobs in November, with 120,000 job losses among small businesses outpacing modest gains recorded by larger firms.
Fox said the weak labor market data comes as the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index, remained higher at 2.8% for headline PCE and 2.9% for core PCE in September, the most recent data release for the metric because of the effects of the government shutdown on data collection.
EY-Parthenon Chief Economist Gregory Daco said in a note that policymakers are confronted with three questions entering Wednesday’s: how persistent will tariff-driven inflation be, how weak is the labor market, and how close is monetary policy to neutral.
He said that tariff-induced inflation “remains a thorny issue in a new economic paradigm defined by overlapping supply shocks from trade policy and tariffs to demographic shifts, immigration swings, and an emerging technological revolution in AI.”
First American Economist Weighs in On Rate Cut
Daco is among a host of analysts who have weighed in on what could happen at Wednesday’s meeting.
First American Senior Economist Sam Williamson agrees that the expectation is a rate cut.
“The Federal Open Market Committee (FOMC) is expected to reduce the federal funds rate by another 25 basis points to 3.50-3.75 percent at its December meeting, which would mark the third reduction since summer as policymakers edge toward a more neutral setting,” Williamson said.
He noted that he, too, thinks the lack of recent data is important.
“The Fed still lacks official October and November employment data, but September’s jobless rate of 4.44 percent already sits above the committee’s central range for ‘maximum employment,’ underscoring a softening labor market,” Williamson said.
He said there likely will be dissents.
“Should the committee cut as expected, the decision is likely to garner multiple dissents—possibly in both directions—as an increasingly divided Fed weighs upside inflation risks against rising employment concerns,” Williamson said.
SEP Will Outline Policymakers’ Forecasts
He also noted that the December meeting also will include a quarterly update to the Summary of Economic Projections (SEP) outlining policymakers’ forecasts for growth, inflation, unemployment and interest rates through 2025 and beyond.
“The update is expected to look broadly similar to the current SEP, last updated in September,” he said. “The 2025 unemployment median may edge up toward 4.6 percent, while inflation medians hover near 3 percent.”
What lies ahead next year? Williamson said Wednesday’s announcement could impact that.
“Officials are projected to keep the 2026 median fed funds projection at 3.375 percent, pointing to one cut next year assuming a December cut. However, significant dispersion in individual projections means even small revisions by a few participants could shift the 2026 median and spark outsized moves in market rate expectations.”
Williamson said that despite a slower path to neutral, affordability should improve.
“With Fed officials increasingly split over the next move, a slower path back to neutral looks like the base case heading into next year,” Williamson said. “That likely leaves 30-year mortgage rates hovering in the low-6 percent range, drifting down only gradually, rather than snapping back to the 3–4 percent levels of the last cycle.”
There are signs of improvement ahead, Williamson said.
“Even so, housing affordability is finally moving in the right direction, with several consecutive months of year-over-year improvement as home-price gains cool, incomes rise faster than prices, and rates ease at the margin. Taken together, these forces point to a measured, but persistent, recovery in buying power through next year—even if mortgage rates don’t decline meaningfully,” he said.
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