Is the Federal Reserve likely to cut interest rates in December? Here’s what economists say.

The recent government data showing solid U.S. job growth in September has caused a shift in expectations for a December interest rate cut by the Federal Reserve. Previously seen as a sure thing, economists now believe the Fed is likely to hold off on lowering borrowing costs at their next meeting.

According to economists polled by FactSet, the probability of a rate cut now stands at 22%, down significantly from mid-October. CME Fedwatch, which forecasts rate cuts based on changes in Fed Funds futures prices, gives slightly better odds at around 41% for a reduction. This means that Wall Street economists and traders expect the Fed to keep rates unchanged at the upcoming meeting on Dec. 9-10, marking a pause in the recent trend of lowering lending rates.

The blackout in federal economic data due to the government shutdown has hindered the Fed’s ability to assess key economic trends. Fed Chair Jerome Powell had previously cautioned that a December rate cut wasn’t guaranteed, citing signs that the job market remains strong. The latest jobs data showing continued hiring in September has reinforced this sentiment.

Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, noted that the labor market continues to exceed expectations, which likely rules out a rate cut in December. The federal funds rate currently sits in a range of 3.75% to 4%, and a decision to hold off on rate cuts could keep borrowing costs for homes and cars elevated.

The Federal Reserve’s dual mandate of keeping inflation and unemployment in check has been a key factor in recent rate cuts. The latest payroll gains show higher-than-expected hiring numbers, while inflation has edged up to an annual rate of 3% in September. This puts pressure on the Fed to prevent further price increases.

The mixed economic picture is further complicated by the lack of recent official data, with some October jobs data set to be included in the November report after the Fed’s next meeting. Despite today’s numbers being better than expected, economists believe the Fed will skip a rate cut in December. However, with concerns over the labor market trend, they may resume cutting rates at the January 2026 meeting if no action is taken in December.

In conclusion, the job market’s resilience and inflation concerns have led to a shift in expectations for a December rate cut by the Federal Reserve. The decision to hold off on lowering borrowing costs reflects the strong economic indicators but also raises concerns about future monetary policy. As economists continue to monitor key economic trends, the Fed’s next moves will be closely watched by market participants.