November 2025
Traders and investors were finally privy to fresh economic data with the release of the November employment report. The economy generated 64,000 non-farm jobs in November, besting the consensus estimate of 50,000 but a muddling result, nonetheless. The unemployment rate rose to a cycle high of 4.6%, the highest since 4.7% touched in September 2021. The actual rise in unemployment was a little over a tenth of a percent, because the 3 decimal rate was 4.564%, but the BLS rounds to a single decimal, and hence rounded up to 4.6%. The number of people in the labor force rose a healthy 323,000 since the last count in October. Those numbers, while clearly less than robust, are not indicative of a contracting economy. The initial report of GDP growth in the third quarter is to be released on December 23rd, and the expectation is that the economy expanded 3.2%, decelerating slightly from the 3.8% recorded in the second quarter.
Accompanying the employment report was core retail sales for October, which increased by 0.5% month-over-month, offering confirmation that the start of the fall selling season got off to a healthy start. Given reports of robust sales during black Friday and cyber-Monday, we’re expecting year-over-year retail sales growth of between 3% to 4%, keeping GDP chugging along.
As was widely expected, the FOMC cut the overnight Fed Funds rate corridor by 25 basis points to 3.5% to 3.75% at the December meeting. Also as expected, the action was not unanimous with two dissents in favor of leaving the rate unchanged and one in favor of a 50 basis-point cut. It was also communicated that there were four “soft” dissents to leave the rate unchanged, meaning regional Fed Presidents on the committee who don’t currently vote on policy action.
The updated Summary of Economic Projections indicated that the committee expects stronger growth in GDP next year and only one 25 basis-point cut in rates in each of the next two years.
While the much-maligned Economic Projections are really nothing more than an educated guess by the members of the Federal Reserve, the current projection should be taken with a large dose of salt. The committee is likely to have a much-changed posture in the new year. Specifically, the Federal Reserve Presidents who will have voting privileges in 2026 have a more hawkish view of monetary policy. More importantly though, President Trump has made it clear that he believes the President should have a say in monetary policy and is expected to nominate someone who shares that view to replace Chairman Powell when his term ends in June. Trump has expressed that Kevin Hasset and Kevin Warsh are his finalists for the role. Both have had distinguished careers, and we wonder once either is in the role, will they acquiesce to the wishes of a President looking for a short-term bump in the economy at the expense of making a longer-term policy error.
In addition to cutting the overnight rate, the Committee announced a return to quantitative easing. It will begin buying Treasury Bills in the open market to the tune of an additional $40 billion a month. That’s in addition to the $20 billion a month of maturing Mortgage-Backed holdings that are currently being reinvested into T-bills.
