The Federal Reserve cut interest rates by 25 basis points on December 10, 2025, in a deeply divided 9–3 vote—the most dissents in six years—bringing the funds rate to 3.5–3.75%. Minutes released December 30 revealed the decision was 'finely balanced,' with officials split over whether weak hiring or stubborn inflation poses the greater risk. The delayed BLS report released December 16 showed the economy lost 105,000 jobs in October and added only 64,000 in November, while unemployment climbed to 4.6%, the highest since September 2021. Combined with the November ADP report showing a 32,000 private-sector job loss concentrated in small businesses, the data confirmed the labor market weakened sharply in late 2025.
The contentious rate cut came after a record 43-day government shutdown permanently erased October household survey data, forcing the Fed to rely on incomplete information and private indicators. Chair Jerome Powell signaled the central bank is 'well positioned to wait,' with the December dot plot projecting only one additional cut in 2026. As Powell's term ends in May 2026, Kevin Hassett—a Trump advisor who has questioned BLS data integrity and called for faster rate cuts—has emerged as the 70% favorite to succeed him, raising concerns about the politicization of both monetary policy and labor statistics heading into 2026.
Highest level since September 2021, up from 4.3% in August, signaling meaningful labor market deterioration and raising recession concerns.
-105,000
Net change in payrolls, October 2025 (BLS establishment survey)
Sharp job losses in October following the government shutdown, though no unemployment rate was available for that month due to missing household survey data.
+64,000
Net change in payrolls, November 2025 (BLS)
Well below the roughly 180,000 needed to keep pace with population growth, confirming the labor market has 'shown little net change since April.'
3.5%
Year-over-year wage growth for all workers, November 2025 (BLS)
Smallest annual gain since May 2021, down from 4.4% earlier in the year, easing inflation pressure but squeezing household purchasing power.
9–3
FOMC vote on December 2025 rate cut
Most dissents on a rate decision since 2019, with three members voting against and several supporters calling it 'finely balanced,' exposing deep divisions.
1 cut
Median Fed projection for 2026 rate cuts (dot plot)
Down from market expectations of 2–3 cuts, signaling the Fed believes it is nearing 'neutral' policy and will move cautiously despite labor weakness.
70%
Market-implied probability Kevin Hassett becomes Fed chair in 2026
Trump advisor and rate-cut advocate Hassett is the clear favorite to replace Powell in May 2026, raising questions about Fed independence.
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People Involved
Jerome Powell
Chair, U.S. Federal Reserve Board of Governors (Presiding over deeply divided FOMC as term nears May 2026 end; Kevin Hassett 70% favorite to succeed)
Nela Richardson
Chief Economist, ADP (Key private‑sector voice interpreting labor market cooling for policymakers and markets)
Karoline Leavitt
White House Press Secretary (Defending Trump administration’s attacks on labor statistics and signaling missing October data may never be released)
Erika McEntarfer
Former Commissioner, U.S. Bureau of Labor Statistics (Fired by President Trump in August 2025 after weaker‑than‑expected jobs data and revisions)
Kevin Hassett
Director, National Economic Council; frontrunner to succeed Jerome Powell as Fed chair (70% favorite in prediction markets to become Fed chair in May 2026)
Austan D. Goolsbee
President, Federal Reserve Bank of Chicago (Voted against December 2025 rate cut, citing inflation concerns)
Jeffrey R. Schmid
President, Federal Reserve Bank of Kansas City (Voted against December 2025 rate cut, citing inflation concerns)
Stephen I. Miran
Governor, Board of Governors of the Federal Reserve System (Voted for larger 50 bp rate cut in December 2025, citing labor market risks)
Organizations Involved
BO
Board of Governors of the Federal Reserve System
Central bank
Status: Delivered contentious 9–3 rate cut in December 2025; signaling cautious approach with only one cut projected for 2026 amid deep internal divisions
The Federal Reserve sets U.S. monetary policy with a dual mandate of maximum employment and stable prices. In 2022–2023 it led a rapid tightening cycle to fight high inflation, then began cutting rates in late 2024 as inflation moderated and job growth slowed.
AD
ADP Research / ADP National Employment Report
Private Data Provider
Status: Primary real‑time gauge of private employment while official data are delayed
ADP Research, part of payroll processor ADP, produces the ADP National Employment Report and Pay Insights series using anonymized payroll data from over 26 million U.S. workers. Its monthly report offers an independent read on employment and wage trends by firm size, industry and region.
U.
U.S. Bureau of Labor Statistics (BLS)
Federal Statistical Agency
Status: Released delayed Oct–Nov jobs report Dec 16, confirming sharp labor market deterioration; October household survey permanently missing
BLS is the principal federal agency responsible for measuring labor‑market activity, including the monthly Employment Situation report, which tracks payroll growth, unemployment and wages.
WH
White House – Trump Administration (Second Term)
Executive Branch
Status: Driving both the 2025 shutdown and a political campaign against official labor data
The Trump White House is a central political actor in the labor‑market and Fed policy story, both by instigating the 2025 shutdown through budget brinkmanship and by attacking the credibility of official jobs data while pressuring the Fed to cut rates.
Timeline
FOMC minutes reveal December rate cut was 'finely balanced'
Monetary Policy
Minutes from the Dec 9–10 meeting show 'a few' of those who voted to cut rates said the decision was 'finely balanced' or that they 'could have supported' no change. Officials remain divided over whether stubbornly elevated inflation or weak hiring poses the bigger threat, with dissents citing concern that inflation progress had 'stalled in 2025.'
BLS releases delayed Oct–Nov jobs report: 105k Oct losses, 64k Nov gains, 4.6% unemployment
Data Release
The combined report shows October payrolls fell by 105,000 (no unemployment rate available due to shutdown), November added 64,000 jobs, and the unemployment rate climbed to 4.6%—the highest since September 2021. Wage growth slowed to 3.5% YoY, the smallest gain since May 2021. BLS notes employment has 'shown little net change since April.'
Powell signals Fed is done cutting for now after contentious 9–3 vote
Monetary Policy
At the post-meeting press conference, Chair Powell says the Fed is 'well positioned to wait and see how the economy evolves' and notes policy is now 'within a broad range of estimates of its neutral value.' The updated dot plot projects only one 25 bp cut in 2026, down from market expectations of 2–3 cuts.
Fed cuts rates 25 bps in most divided vote since 2019
Monetary Policy
The FOMC lowers the federal funds rate to 3.5–3.75% by a 9–3 vote. Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid vote for no change, while Governor Stephen Miran dissents in favor of a 50 bp cut. It is the first time in six years that three members dissent on a rate decision.
Kevin Hassett emerges as clear favorite to replace Powell as Fed chair in 2026
Political
Media reports and prediction markets converge on National Economic Council Director Kevin Hassett as the 70% favorite to succeed Jerome Powell when his term expires May 15, 2026. Trump tells the Wall Street Journal he is leaning toward 'the two Kevins'—Hassett or former Fed Governor Kevin Warsh. Hassett has publicly questioned BLS data integrity and called for faster rate cuts.
Fed set to decide on December rate cut amid deep internal split
Monetary Policy (Upcoming)
At the December 9–10 meeting, the FOMC is widely expected to deliver another 25 bp rate cut, bringing the funds rate toward 3.5–3.75%. But reporting suggests 2–3 likely dissents, the most in decades, reflecting disagreement over how to weigh incomplete labor data versus still‑elevated services inflation.
Markets rally on weak jobs data as rate‑cut odds surge
Market Reaction
U.S. equities rise and the dollar slips after the ADP report; futures price in an 80–90% chance of a 25 bp rate cut at the December Fed meeting. Analysts at firms like JPMorgan and Morgan Stanley revise forecasts to assume at least one more cut in early 2026 as well.
Chicago Fed estimates unemployment roughly steady but notes emerging job losses
Alternate Data
With official November data delayed, the Chicago Fed releases an estimate suggesting the unemployment rate is about 4.4%, little changed from October, but cites alternative datasets (Revelio Labs, ADP) showing back‑to‑back monthly job losses in key sectors.
ADP reports 32,000 private‑sector jobs lost in November
Private Data Release
ADP’s November report shows private employers shed 32,000 jobs, versus consensus forecasts for gains. Small firms lose around 120,000 jobs while medium and large employers add workers; manufacturing, professional and business services, information and construction lead the declines. Wage growth for job‑stayers slips to 4.4% YoY.
Labor Department cancels full October jobs report
Data Release
The Labor Department announces it cannot produce a full October Employment Situation report, including the unemployment rate, because the shutdown prevented the household survey. October payroll figures will instead be released alongside the November report on December 16—after the Fed’s December 9–10 policy meeting.
White House says October jobs and inflation data likely gone for good
Public Statement
Press Secretary Karoline Leavitt tells reporters that October jobs and CPI reports will 'likely never be released,' blaming Democrats for harming the statistical system. Friends of BLS and other experts confirm that some data cannot be reconstructed, forcing heavier reliance on private sources.
Shutdown ends after 43 days, but data damage is permanent
Government Shutdown
Congress passes and President Trump signs a funding bill ending the longest U.S. shutdown. The White House and independent analysts warn that some October economic statistics, including CPI and key labor measures, will never be produced, leaving a 'blind spot' in the data used by the Fed and markets.
Government shutdown begins, freezing key labor data
Government Shutdown
A funding impasse triggers a full federal shutdown that closes agencies including BLS and the Census Bureau. BLS stops updating its website on October 24 and suspends collection of most surveys, creating a looming gap in jobs and inflation data just as labor conditions soften.
Record BLS benchmark revision erases 911,000 jobs
Data Revision
BLS releases preliminary benchmark revisions showing that from April 2024 to March 2025 the economy added 911,000 fewer jobs than initially reported, halving average monthly gains. Analysts conclude that the labor market entered 2025 with far less momentum than thought, reinforcing arguments for more aggressive Fed easing.
Fed delivers first rate cut of the cycle
Monetary Policy
After an aggressive post‑pandemic hiking campaign, the Federal Reserve cuts the federal funds rate by 25 bps, citing progress on inflation and a cooling labor market. Markets interpret the move as the start of a slow easing cycle, with further cuts expected in 2025.
Scenarios
1
Orderly Fed Easing Delivers a 'Softish' Landing
Discussed by: Mainstream macro strategists and central‑bank watchers (e.g., FT, Capital Group, Chicago Fed economists)
In this scenario, the Fed cuts in December and again once or twice in 2026, bringing the funds rate modestly lower while inflation continues to trend toward 2%. Job growth remains weak but positive on average, unemployment drifts only slightly higher, and wage gains around 3.5–4% support real incomes as inflation cools. The ADP November decline proves to be a wobble rather than the start of a deep contraction, and downward revisions are largely behind us. Historical analogies include the 1994–95 Greenspan 'soft landing,' where the Fed eased slightly after an aggressive hiking cycle without triggering a recession.
2
Small‑Business Recession Spreads to the Broader Economy
Discussed by: Private‑sector economists and small‑business analysts watching tariffs, credit conditions and ADP size‑breakdowns
Here, the pattern in the ADP report—large job losses at small firms offset by hiring at bigger companies—intensifies. High borrowing costs, tariffs and weak consumer demand push many small businesses to cut staff or close, particularly in interest‑sensitive sectors like construction, manufacturing and professional services. The official unemployment rate rises meaningfully once BLS data normalize, and layoffs spread to larger employers as demand softens. The Fed responds with a more aggressive cutting cycle in 2026, but the lag in policy transmission means the economy experiences at least a mild recession, echoing periods like 2001 or 1990–91 where tightening and external shocks combined to tip the cycle.
3
Data Blackout Leads to Policy Mistake—Cutting Too Fast or Too Slowly
Discussed by: Policy analysts focused on statistical integrity, former BLS officials, and some Fed skeptics
Because the 43‑day shutdown has permanently impaired October jobs and inflation data and delayed November figures, the Fed is forced to rely more heavily on noisier private indicators. One risk is that the central bank overweights weak signals from ADP and alternative datasets and cuts too aggressively, only to discover later that the labor market was more resilient and inflation stickier than thought, re‑stoking price pressures. The opposite risk is that concerns about data quality make Fed officials overly cautious, leading them to under‑react to a genuine deterioration in employment. Either way, the lack of a clean official data series increases the odds of a policy error and raises questions about the politicization of statistics.
4
Political Pressure Reshapes the Fed and the Data Regime
Discussed by: Political risk analysts and some financial commentators
In this scenario, ongoing White House attacks on BLS and Powell succeed in shifting both personnel and norms. Kevin Hassett or another Trump‑aligned economist becomes Fed chair in 2026, potentially favoring either faster rate cuts to support growth or, conversely, a more hawkish posture to demonstrate anti‑inflation credentials, depending on political incentives. At the same time, a new BLS leadership considers changes such as less frequent jobs reports or revised methodologies, reducing transparency. Markets begin to discount official data and lean more on private sources like ADP and bank payroll trackers, increasing volatility around each release and further entangling statistics with partisan conflict.
5
Inflation Re‑Accelerates, Forcing the Fed to Reverse Course
Discussed by: More hawkish economists and some bond‑market strategists
Despite weakening job growth and wage deceleration in the ADP data, services inflation and shelter costs could remain sticky, especially if fiscal policy and infrastructure/AI investment keep demand strong. If inflation measures re‑accelerate while the Fed is cutting, officials may be forced to halt easing or even hike again, repeating elements of the stop‑go patterns seen in the 1970s or in some post‑2000 cycles. That would likely trigger a sharper downturn, as households and firms confront both higher rates and a softer labor market.
Discussed by: Bond market strategists, some economists concerned about Fed independence
Kevin Hassett takes over as Fed chair in May 2026 and, aligned with White House preferences, delivers two or three rate cuts by year-end even as inflation remains above 2.5%. Services inflation proves stickier than expected, and fiscal stimulus from tax cuts and infrastructure spending keeps demand strong. By early 2027 the Fed is forced to reverse course and hike, triggering a sharp market correction and undermining central bank credibility. This scenario echoes elements of the 1970s stop-go policy cycles and assumes that politicization of the Fed leads to a meaningful policy error.
Historical Context
1994–95 Fed Soft Landing Under Alan Greenspan
1994–1996
What Happened
In the mid‑1990s, the Fed doubled the federal funds rate from about 3% to 6% over 13 months to pre‑empt inflation, then trimmed rates by 75 bps in 1995 when growth slowed. GDP growth eased but remained solid, inflation stayed contained near 2–3%, and unemployment kept falling from around 6.6% to the mid‑5% range, a classic 'soft landing.'
Outcome
Short Term
Growth cooled without a recession, financial markets adjusted to higher rates, and inflation never took off.
Long Term
The U.S. enjoyed a long expansion through the late 1990s, cementing the episode as the benchmark for successful Fed tightening and easing cycles.
Why It's Relevant Today
Today’s Fed is again trying to ease after a sharp hiking cycle while keeping inflation in check and avoiding a spike in unemployment. Many commentators explicitly reference 1994–95 as the template for a 'softish' landing, but note that starting inflation and political conditions are more challenging now.
2007–08 Fed Cuts Before and During the Great Recession
2007–2009
What Happened
As signs of economic weakness emerged in mid‑2007—especially in housing and credit—the Fed began cutting rates, lowering the funds rate by more than 3 percentage points by spring 2008 and eventually to near zero by December 2008. Nonetheless, job losses mounted and the economy fell into the Great Recession.
Outcome
Short Term
Aggressive rate cuts cushioned some damage but could not prevent steep output and employment declines as the financial crisis intensified.
Long Term
The episode underscored that monetary policy alone cannot offset structural shocks and that lagging data can leave policymakers behind the curve.
Why It's Relevant Today
The 2007–08 experience is a cautionary tale: even rapid cuts may fail to avert recession if underlying imbalances are severe or if data understate emerging weakness. Today’s downward revisions and small‑business stress raise concerns that the labor market could be weaker than it looks in real time.
2018–2019 U.S. Government Shutdown and Data Delays
December 22, 2018 – January 25, 2019
What Happened
A 35‑day partial shutdown over border‑wall funding furloughed about 800,000 federal workers and temporarily disrupted some economic data releases. Agencies like the Census Bureau and parts of the Labor Department faced delays, and the Congressional Budget Office estimated at least $11 billion in lost output.
Outcome
Short Term
GDP growth was modestly reduced and some data were delayed, but most statistics were eventually published and the long‑term macro impact was limited.
Long Term
The episode highlighted how shutdowns can complicate economic monitoring, but it did not permanently erase key datasets.
Why It's Relevant Today
The 2025 shutdown is longer, broader and more damaging to data integrity, permanently erasing some October employment and inflation statistics. Comparing the two episodes shows how extending and politicizing shutdowns can move from causing mere delays to creating lasting blind spots in the data the Fed relies on.
