Mixed November Employment Report Suggests Fed Could Lower Interest Rates to 4.0%-4.25%: Macquarie

According to Macquarie, the latest employment report for November presented a complex economic picture. The report showed an increase of 227,000 in payroll numbers, which was partly a correction from disruptions caused by strikes and severe weather conditions in the previous month. The underlying details of the report were viewed positively.

However, the household survey presented a less favorable scenario. The unemployment rate showed a slight increase from a rounded 4.14% to 4.25%; this was a result of a decline in household employment. The report suggested that the increase in unemployment could have been more pronounced had the labor force participation rate not declined.

One striking statistic was the 0.5 percentage point drop in the employment-population ratio for individuals aged 25-54 over the past two months. The mixed findings from the November employment report are expected to influence the Federal Reserve's decision-making process. A 25 basis point interest rate cut is anticipated from the central bank on December 18.

This move aligns with Macquarie's Global Economic Outlook, which anticipates only an additional 25 basis point interest rate cut in 2025, potentially adjusting the federal funds rate to a range of 4.0% to 4.25%. The weakness highlighted in the household survey component of the report may indicate a trend towards more interest rate cuts than previously forecasted. Macquarie's analysis suggests that the risks associated with the baseline forecast for the federal funds rate may lean more towards further cuts.