Analysis: Weak U.S. Employment Data May Prompt Fed to Cut Rates Earlier Next Year

On December 17, the Royal Bank of Canada (RBC) noted that U.S. non-farm payrolls data points to a further weakening in the labor market, while more resilient consumer spending signals demand conditions remain fairly strong. Overall, this could prompt Federal Reserve policymakers—who held differing views at the central bank’s last meeting—to reassess their stances, raising the likelihood of a rate cut in 2026. That said, Goolsbee and Schmidt, the two key dissenters who pushed to keep rates unchanged at last week’s meeting, will lose their voting positions next year. They are likely to be replaced by Hammack and Logan, who may take a more hawkish stance. Convincing these incoming policymakers to shift their views and back more aggressive rate cuts will be a tough task. However, the cooling labor market will continue to erode their hawkish resolve, as the balanced mix of economic data has undermined the Fed’s rationale for keeping rates on hold. As a result, the probability of the Fed easing monetary policy earlier than expected in 2026 is rising. (Source: FXStreet)