US jobs report deepens Fed split over rate cut

Analysts told Argaam that the US September jobs report did not settle the Federal Reserve’s direction for its next meeting, instead delivering mixed signals that have widened the internal split at the Fed and left the rate decision “open,” especially with no further data available due to the government shutdown.
 

They added that the December decision remains “open” across all scenarios as the shutdown limits fresh data.
 

Conflicting data, hard balance
 

Ahmed Azzam, Head of Research and Market Analysis at Equiti Group

Ahmed Azzam, Head of Research and Market Analysis at Equiti Group, said the September report does not strengthen the case for a December rate cut and instead tilts slightly toward holding rates steady—even though the addition of 119,000 jobs was more than double market expectations of 51,000.
 

He noted that the strong headline figure followed negative revisions totaling 33,000 jobs for July and August, including a shift in August from a minor gain to a loss of 4,000 jobs, suggesting underlying momentum in the labor market remains soft.
 

He added that the rise in unemployment to 4.44% does not reflect broad layoffs but rather an increase in labor-force participation from 62.3% to 62.5%, indicating more people are entering the workforce and reducing the significance of the uptick as a warning sign.
 

Hourly wages slowed to 0.2% month-on-month after August was revised up to 0.4%, signaling no immediate wage-inflation risk. “The labor market is slowing but still resilient—not an economy in collapse,” he said.
 

Azzam stressed that timing is critical: October and November job reports will be released on December 16, after the Fed meets on December 9–10, making September the last full dataset available to policymakers.
 

He said the relatively firm yet lagged report raises the odds the Fed holds rates in December, especially after Chair Jerome Powell said the decision is not settled, with committee members split between those favoring a pause and others—like Christopher Waller—pushing for another 25-bp cut over labor-market concerns.
 

Market odds rise despite hesitation
 

Wael Makarem, Senior Market Strategist for MENA Region at Exness

Wael Makarem, Senior Market Strategist for MENA Region at Exness, said expectations for a 25-basis point rate cut in December climbed to above 40%, from 30% the day before the report.
 

He said the data, despite its strong headline, has deepened divisions inside the Fed between those advocating a pre-emptive cut and those pushing to keep rates unchanged, underscoring how difficult it is to reach a unified stance.
 

He added that the government shutdown in October and November may have distorted some indicators, while “job cuts” data showing 177,000 layoffs in October—the highest since 2003—strengthens the case for a “precautionary cut” to support a soft landing.
 

In the coming weeks, the Fed will rely more on private-sector indicators, such as ADP employment, the employment components of ISM manufacturing and services indices, and hiring-intent surveys, Makarem said. “One reading is not enough to set policy.”
 

Data doesn’t justify a cut—yet uncertainty grows

Azzam said that 119,000 jobs, slowing wages, and higher unemployment driven by rising participation do not justify a cut greater than 25 bps—but they also do not provide a clear case for a December cut at all.
 

The pre-report scenario was for a 25-bp cut, he noted, but the data reduced that conviction and increased the odds of no change, especially after Powell emphasized that policy is “not on a pre-set course.”
 

The Fed has already cut twice by 25 bps, and the current language suggests December is an “open meeting,” pending further confirmation from incoming data.
 

Fed prefers to focus on labor data with no sharp inflation signals

Makarem said evaluating the “balance of risks” remains difficult with inflation data showing little change and input costs rising without a clear trend.
 

The Fed is increasingly relying on broad labor-market data rather than focusing solely on unemployment, which remains near 4% with no immediate warning signs.
 

Oil prices around $60 per barrel reduce the risk of a sudden inflation spike, giving the Fed room to focus on labor-market resilience. But a single report like September’s is insufficient to drive policy, he said.
 

Muted inflation—and attention shifts to AI

Makarem noted that inflation is not an immediate threat, with oil stabilizing around $80 and wage pressures easing, reducing the likelihood of near-term price surges.
 

The Fed now prioritizes labor-market signals and may opt for a “neutral” cut that gives it another 3–6 months to assess data before taking the next step.
 

Azzam added that expected policies under a Trump administration—including tariffs and fiscal spending—could rekindle inflation by raising goods prices and prompting wage-increase demands.
 

He warned that cutting rates in an environment of lower immigration, an aging workforce, and accelerating AI adoption could fuel inflation rather than support employment, making the Fed more sensitive to potential inflationary waves in 2026.
 

Politics, economics, and inflation risks

Makarem said the Fed has shown flexibility in addressing economic pressure or weakening employment, having cut rates when needed last year.
 

The lack of data during the shutdown was a challenge, but the return of official releases gives policymakers more clarity.
 

He said the September report is insufficient to change the broader policy path, especially with new structural forces—such as AI’s impact on labor—expected to emerge in late 2025, a theme some Fed officials have begun highlighting.
 

On fiscal policy, he noted that any direct stimulus—such as $2,000 household payments—could lift money supply and inflation risks, while a geopolitical shock or higher oil prices could halt the Fed’s cutting cycle.
 

If the Fed cuts in December, it will likely aim to reach a “neutral rate,” giving it 3–6 months to observe data before making more targeted moves.
 

Azzam concluded that a gradual labor-market slowdown without recession, persistent above-target inflation, and upside risks from tariffs and fiscal spending make a limited rate cut the most plausible scenario to secure a soft landing.