This week’s US jobs and inflation data could test the Fed’s policy bias
The US unemployment rate is expected to drift higher as inflation continued to drift above the US Federal Reserve's target.
A long awaited update on the US labour market and the latest CPI Index read will provide colour on the balance of risks to the US economy.
Economists forecast lift in unemployment rate, steady inflation
Forecasters predict that the latest reads on joblessness and inflation in the US will show a tick-up in the unemployment rate and relatively steady inflation. The data is the first full and up to date survey on the state of the US labour market and price pressures after the disruptions and delays caused by the US government shutdown.
The November Non-Farm Payroll release is projected to reveal an uptick in the unemployment rate to 4.5%, with 50,000 jobs expected to be added to the economy. This is a rise from the 4.4% recorded in the September Non-Farms data – the last update the markets received – with jobs gains below the roughly 119,000 shown in that release.
Meanwhile, the CPI Index is tipped to show steady but sticky prices. Economists estimate that core inflation was practically unchanged from the last read, rising 3% on an annual basis. The headline inflation figure is forecast to rise modestly, from 3% to 3.1% on an annual basis.
On the surface, the data points to an economy plagued by a sluggish labour market and stubborn and possibly reanchored prices. The cause of the weaker jobs growth is contentious, with explanations ranging from immigration policy, slowing demand and artificial intelligence. Explanations for sticky inflation range from tariffs to persistent excess demand.
The data mix could inform Fed rate expectations going into 2026
The dynamic is putting both sides of the US Federal Reserve’s dual mandate at odds. The economy appears to be drifting away from full employment at the same time prices are drifting away from target. The markets are left in the position of trying to anticipate the Fed’s assessment of the balance of risks.
The last FOMC meeting of the year revealed a Fed seemingly prioritising the labour market. Perhaps in a sign that the Fed believes the data this week could prove weak, the central bank dialled down the hawkish rhetoric it delivered at its October decision to express concern about the labour market and comfort with the direction of inflation
That guidance from the Fed, backed up by its latest Summary of Economic Projections, led the markets to price-in a relatively higher chance of further rate cuts from the central bank next year. Although a brief pause is discounted in the rates curve, the markets are pricing in another cut to come by the middle of next year, with a high chance of another after that.
A Santa Rally could hinge on stable inflation data
A benign inflation read and a jobs release that shows some slack in the labour market could put the so-called Santa Rally back on track. While equities lifted, the Dollar dropped and gold rose after the Fed decision, momentum has been lacking, potentially due to upcoming data. Data that supports the case for cuts could provide a fresh tailwind for these moves.
Technically speaking, the S&P 500 is consolidating and remains in an uptrend, albeit while suffering slowing momentum according to the daily RSI. A break through 6920 would be a bullish signal and put the market on strong footing heading into 2026. Meanwhile, the 50-day moving average could provide support, with 6500 the critical level on the downside.
(Source: Trading View)
(Past performance is not a reliable indicator of future results)