The US Federal Reserve took an extended pause on interest rate cuts after December’s jobs data

A drop in the unemployment rate could ease concerns at the U.S. central bank about labor market weakness, with traders betting that Federal Reserve Chairman Jerome Powell has made his last rate cut before his term ends in May and that any further policy easing remains in the hands of whomever President Donald Trump appoints as Powell’s successor. The unemployment rate fell to 4.4% last month, down from a revised 4.5% in November, the U.S. Labor Department reported Friday, even as employers added 50,000 jobs during the month. Economists polled by Reuters had forecast a gain of 60,000. Powell helped the Fed cut its key overnight rate by three-quarters of a percentage point last year in an effort to keep the labor market from weakening further, even as his more hawkish colleagues argued that could slow or even jeopardize progress in pushing inflation above target.

The latest labor market data appears to give the central bank some breathing room to leave short-term borrowing costs where they are, as Powell indicated last month that policymakers are inclined to do, at least in the short term.Traders of interest rate futures tied to the Fed’s policy rate now see only a 44% chance of a rate cut in April, compared to the odds previously being virtually the same, with a resumption of rate cuts in June seen as the much more likely scenario.

Powell’s term as Fed chief ends on May 15. Trump, who has repeatedly attacked Powell for failing to deliver the big interest rate cuts the president wants, has said he has chosen a successor who supports further cuts in borrowing costs. An announcement is expected this month.

SIGNS OF SLOW LABOR MARKET The decline in U.S. unemployment in December “should undercut the Fed’s recent urgency to deal with a weakening labor market,” said Olu Sonola, head of U.S. economic research at Fitch Ratings. “That said, the weak job growth story cannot be dismissed. Employment remains stuck in stagnation, and job growth in the cyclical parts of the economy is not sending a reassuring signal.”

U.S. employers added just 548,000 jobs in 2025, down from about 2 million in 2024, Friday’s data showed. The number of unemployed people who have been looking for work for more than half a year is now over a quarter of the unemployed, and the number of people working part-time because they cannot find full-time work has risen sharply compared to a few months ago. “Risks center on an uptick in layoffs in the future,” economists at Pantheon Macro noted, suggesting that pressure for further Fed easing continues even with Powell still at the helm of the central bank, perhaps as early as March. Traders currently see less than a 30% chance of a rate cut by then.

Much more data is yet to come before Powell steps down as Fed chief, including benchmark revisions to labor market data next month that are widely expected to make hiring even slower than reported.

“The Fed will remain very open to the possibility that underlying softening could still push the unemployment rate and other measures higher enough in coming months to warrant a cut in March,” wrote Evercore ISI Vice Chairman Krishna Guha. “But overall, we see some support here for our view that it is more likely than not that the Fed will leave rates unchanged until June, when it will make its first cut under the new chairman.”