CIBC notes that the non-farm payrolls release yesterday reflected further softness in US labour market conditions. Adding that while payrolls gained by 64k in November, it comes after a sharp decline of 105k in October which effectively erases the gains from September.
Besides that, the three-month average job growth has cooled further to 22k and the unemployment rate also edged a little higher to 4.6%. So, all of that points to suggestions that the labour market is continuing to soften as a whole.
And when coupled with a more resilient consumer as the October retail sales control group showed a 0.8% jump, it suggests that demand conditions are still holding up rather favourably.
At the balance, it could prompt Fed policymakers who dissented at the last meeting to reassess their stance. And that could raise the probability of earlier easing in 2026.
That being said, I must point out that Goolsbee and Schmid were the two main dissenters last week in wanting rates to be kept unchanged. Come next year, they will not be on the voting board rotation. So, there's that to keep in mind.
Instead, we will be getting these Fed members on the voting board:
- Beth Hammack (Cleveland Fed)
- Anna Paulson (Philadelphia Fed)
- Lorie Logan (Dallas Fed)
- Neel Kashkari (Minneapolis Fed)
The ones rotating out will be:
- Susan Collins (Boston Fed)
- Austan Goolsbee (Chicago Fed)
- Alberto Musalem (St Louis Fed)
- Jeffrey Schmid (Kansas City Fed)
Looking at the change above, Hammack and Logan should be like-for-like replacements to Goolsbee and Schmid on the central bank dove versus hawk scale. And if anything, they might even be more hawkish. So, it will be a tough task to want to change their minds in pushing for stronger conviction on rate cuts.
However, CIBC argues that a cooling labour market will continue to chip away at their resolve as the balance of evidence weakens the case for the Fed to keep rates unchanged. As such, the firm sees an increasing likelihood of earlier easing by the Fed in 2026.
