Payden & Rygel: Policymakers' unemployment rate projection distribution

15 december 2025

Arbeidsmarkt

The Fed concluded 2025 with its third consecutive 25-basis-point rate reduction at its last meeting of the year. Media reports highlighted dissension in the policy-making ranks, with three dissenters at the FOMC meeting and several policymakers with higher rate expectations in their "dots" for 2025.

However, there is one area where all policymakers seem to agree: the unemployment rate in 2026. The refreshed Summary of Economic Projections showed that 14 of 19 policymakers expect the unemployment rate to end next year between 4.4% and 4.5%.

What's driving the "groupthink" on the labor market? First, hope springs eternal. Policymakers might not want a higher unemployment rate forecast to materialize. Second, policymakers likely expect recent rate cuts to help stabilize the unemployment rate. Third, some policymakers have said fewer jobs are needed to keep the unemployment rate steady.

But history is not on the Fed's side. It's rare for the unemployment rate to remain stable for more than a year, and the risk is that it will move higher. As a result, we might be in for some dovish rate surprises in 2026.