It’s been a frustrating holiday season for those who have recently been laid off or seen wage growth stagnate even as prices for seemingly everything have increased. Unemployment has risen and is significantly above the levels seen in 2023, while inflation has rebounded since April due to President Trump’s tariff policies.
In October, the U.S. unemployment rate increased to 4.4%, up from 3.4% in April 2023, according to the Bureau of Labor Statistics. Meanwhile, CPI inflation was 3% in September, the most recent month available due to the Washington, D.C. shutdown this fall, up from 2.3% in April, before most tariffs went into effect.
The result has been cash-strapped consumers, declining consumer sentiment, and downbeat surveys on holiday spending plans.
The Conference Board‘s Consumer Confidence Index fell 6.8 points to 88.7 in November, as Americans’ opinions on the labor market, inflation, and spending retreated to the lowest levels since spring, when higher-than-expected tariff proposals took a toll on sentiment.
Clearly, the situation isn’t overly rosy for the U.S. economy. On Dec. 16, we’ll find out if there are signs that things are improving when the BLS releases November’s unemployment report.
We may not want to expect much, given Bank of America’s labor market predictions. Economists at the 120-year-old bank recently painted a downbeat picture for job and wage growth.
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Fed reacts as hiring slows, job losses grow
The Federal Reserve doesn’t directly control the interest rates banks charge on credit cards, auto loans, and mortgages. However, it does set the Fed Funds Rate, the rate at which banks charge each other for overnight loans on reserves, and directionally, the FFR does influence Treasury bond yields, which banks use to set lending rates.
The Fed doesn’t increase or decrease rates willy-nilly, though. Its decisions are guided by a dual mandate to maintain low unemployment and low inflation —two goals that are often in conflict.
- Rising rates increase unemployment but reduce inflation.
- Falling rates increase inflation but reduce unemployment.
For this reason, after cutting the FFR by 1% at the end of 2024, the Fed paused additional cuts until September over fears that more cuts, while good for employment, could add fuel to inflationary flames caused by tariffs.
Fed Chair Jerome Powell switched gears in September as layoffs and unemployment continued to climb, making shoring up the labor market a priority.
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According to Challenger, Gray & Christmas, employers announced 1,170,821 layoffs through November this year, a 54% increase from the same period in 2024. In November, 71,321 workers were let go, a figure that may be ominous, given that the only years since 2007 when layoffs exceeded 70,000 in November were recession-riddled 2008 and 2022’s bear market.
The weakening jobs market led the Federal Open Market Committee, FOMC, to cut interest rates by a quarter percentage point at its September, October, and December meetings.
However, additional cuts to help the job market in 2026 will depend on whether unemployment worsens more than inflation from here.
Bank of America resets employment predictions
In a research report to clients shared with TheStreet, Bank of America offered its take on what the BLS’s November jobs data will reveal.
Related: Consumer spending takes a record turn this holiday season
The bank’s economists believe that the US economy created fewer jobs over the past couple of months than it did earlier this year, and that pressures, including layoffs, will result in an increase in November’s unemployment rate.
The bank’s economists point to a slowdown in consumer spending since summer, with Thanksgiving week spending growth, based on its credit and debit card data, only slightly above 2024 levels. Coupled with soft TSA air travel figures in November, Bank of America thinks that leisure and hospitality industry hiring was “relatively softer” last month, contributing to the rise.
Overall, they expect November nonfarm payrolls to show 50,000 jobs added in the month, down from 119,000 in September. In November 2024, 261,000 jobs were created.
Bank of America also expects that, month-over-month, the BLS will show wages rose 0.3%.
The unemployment rate and wage prediction match Wall Street‘s consensus estimate.
What unemployment rate would trigger more rate cuts in 2026?
Fed Chair Powell kept the door open for rate cuts next year, but barely. Fed officials’ dot-plot prediction in December suggested just one more rate cut in 2026.
When that cut happens will depend on how bad unemployment gets. Bank of America believes that if the unemployment rate is 4.5%, as it expects, the Fed will likely pause again in January. A 4.6% unemployment rate would improve the odds, though, and a 4.7% print would “likely precipitate another cut” in January.
Of course, any cut will also hinge on how inflation evolves. The next Consumer Price Index inflation data also lands this week on December 18. Wall Street expects November CPI to show inflation at 3.1%, up from 3% in September.
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