Payden & Rygel: Cracks in the labor market

Payden & Rygel: Cracks in the labor market

24 november 2025

Rente Arbeidsmarkt

As the Earth nears completion of its annual lap around the sun, inflation expectations have also nearly round-tripped. For most of the year, policymakers and investors have been concerned about a tariff-driven reacceleration of inflation.

While we have repeatedly pushed back, citing cooling housing and non-housing service prices offsetting one-time increases in tariff-affected goods prices, it sometimes feels as if these arguments fall on deaf ears. However, over the past month, 1-year forward inflation expectations have dropped significantly - by half a percentage point, from 3.1% to 2.6%. The FOMC's last two rate cuts have been driven by a shift in risk balance - from inflation to a weakening labor market - as payroll growth slowed. We believe that the recent decline in inflation expectations since the last meeting reduces the upside risks to inflation. As such, cracks in the labor market continue to support our view that the Fed ought to keep cutting.

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