DWS: Fed focuses on labor markets again

11 december 2025

Fed Arbeidsmarkt

Christian Scherrmann, U.S. Economist at asset manager DWS, comments on the Federal Reserve meeting:

As expected, the Federal Reserve lowered the target range for the federal funds rate by 25 basis points, reducing it to 3.5%-3.75%. However, the decision was not unanimous. Nine FOMC members voted for the reduction, two voted against changing policy rates, and one voted for a 50-basis-point reduction.

Updated economic projections show growth at 2.3% in 2026 (up from 1.8%), inflation at 2.4% (down from 2.6%), and steady unemployment at 4.4%. The median projection for policy rates remains unchanged, signaling one additional cut in 2026 and one in 2027.

The statement indicates a greater reliance on data for future decisions, most likely in response to the current situation in which much information is still missing. The statement included a comment about purchasing short-term Treasuries to maintain an ample supply of reserves, which should not be interpreted as an indication that the Fed is turning to quantitative easing.

During the press conference, Fed Chair Powell echoed this view. Regarding the economy, Powell said that the outlook for employment and inflation has not changed much, adding that labor demand has clearly softened.

He added that recent rate cuts have helped stabilize the labor market. He noted that disinflation for services appears to be continuing. This indicates that inflation for goods, which is likely affected by tariffs, is still considered temporary. Overall, central bankers seem optimistic about robust consumption, fiscal support, and investments, especially in AI.

It seems the Fed is no longer in a hurry to cut rates further. Fed Chair Powell emphasized that they are well positioned to react to incoming data. He added that the current stance is close to neutral. Looking ahead, we believe labor markets will remain the determining factor as most central bankers seem comfortable with the temporary inflation narrative once again. We maintain our forecast of two additional rate cuts in 2026.