By Felix Vezina-Poirier
Stocks and bonds will react to new data on job openings, wages and labor-market perceptions
The U.S. Federal Reserve, led by Chair Jerome Powell, will make a crucial decision on interest rates at its December meeting.
With the U.S. government now reopened, the flow of economic data will resume over the next few weeks. The first major release was the September employment report, published last Thursday, while the White House has signaled the October data will likely only be partially released. That makes September’s report the only full labor-market reading the Federal Reserve will receive before its December meeting. What does it show, and where does it leave the Fed?
What we know about employment
September nonfarm payrolls rose 119,000, more than expected, rebounding from a downwardly revised loss of 4,000 in August. The pattern of downward revisions continued, with 33,000 jobs removed from prior months. This leaves the three-month average at 62,000, up from 18,000 in August but far below the 232,000 pace at the start of the year. Given the persistent revision pattern, the 119,000 figure is likely to be revised down as well.
The unemployment rate ticked up to 4.4% from 4.3%. The labor market remains near equilibrium, but slightly above the Fed’s view of the natural rate of unemployment. Further weakening would create slack, and that weakness could feed on itself.
The next employment report, for October, will be incomplete. Because the household survey was not collected during the shutdown, the report will not contain the unemployment rate. This is inconvenient for investors, to say the least. The key current macro question has been whether the slowdown in employment reflects a cyclical weakening of the economy due to tariff uncertainty, or a structural slowing in population growth driven by aging and restrictive immigration policy.
What we probably know about the October labor market
Broad alternative indicators show little improvement in October. Private-sector surveys of manufacturing and services firms point to contracting employment. ADP data showed minimal gains. Private-sector measures of job openings and small-business surveys indicate softening labor demand. Private-sector layoff measures have increased, although weekly unemployment claims remain contained.
In sum, employment growth likely remained weak without collapsing. The unemployment rate likely ticked up again, but not sharply. Importantly, businesses do not report increased hiring difficulty, while workers report jobs are getting harder to get. The opposite pattern would appear if aging and reduced immigration were tightening the labor market more than weaker demand.
The Fed’s struggle
Whether employment weakness is driven by labor demand or labor supply is a key fault line within the FOMC. The labor market remains the pivotal factor that will determine the pace of Fed easing. The 10-2 vote at the last meeting for a 25-basis-point cut featured dissents on both sides: Governor Stephan Miran favored a 50-basis-point cut, while Kansas City Fed President Jeffrey Schmid voted to hold rates.
The September job report will not have changed those positions. Hawks can point to the rebound in headline job growth in a context of still-high inflation. Doves can point to the rising unemployment rate, negative payroll revisions, falling wage growth and weak job growth in cyclical sectors.
Recent Fed speeches point to a pause in cuts at the December meeting. Schmid, from the hawkish camp, argued that inflation remains broad-based and above target, with decent growth momentum and a balanced labor market. He views the slowdown as structural and warned about de-anchoring inflation expectations. Meanwhile, governor Christopher Waller, a leading dove, sees inflation driven mostly by tariffs and cyclical labor weakness, with slower wage growth and falling openings signaling demand-side slowing.
While the hawks could win the December debate, the doves’ case appears stronger for 2026. Alternative indicators for October and November do not point to a meaningful rebound in the labor market, and a greater share of the employment slowdown appears cyclical, not structural.
Ultimately, a weakening labor market will weigh on inflation. Goods inflation will soon peak, as shown by our price pressure index, which has crested. Slow growth limits companies’ ability to pass on costs, and falling oil prices have partly offset tariff-driven pressures. While December is uncertain, and should be a holding decision absent an immediate deterioration in the data, the direction of travel for policy rates is lower in 2026.
What investors should know now
This backdrop does not warrant an immediate shift in your investment portfolio, but it requires attention to how the labor market evolves. Signs of structural weakness will validate the hawks and reduce odds of easing. Signs of cyclical weakness will tilt votes toward the doves and increase the likelihood of faster easing.
The indicators to watch are job openings, wages and companies’ and workers’ perceptions of the labor market.
This is a precarious setup. Without major AI developments, good economic news could actually drive stocks lower. Equity markets have been betting on AI for upside, and on a dovish Fed supporting a slowing expansion as downside protection. With inflation still above target, strong data reduces the odds of the Fed easing.
We thus remain modestly defensive on stocks as growth and employment slow, awaiting clearer signs of sustained disinflation and improving macro momentum before turning constructive. Investors should maintain a neutral stance on stocks, an overweight on government bonds and underweight on credit and cash holdings. The labor market will set the direction for policy, and policy will set the terms for risk.
Felix Vezina-Poirier is the chief strategist for Daily Insights, BCA Research’s global cross-asset strategy service. Follow him on LinkedIn and X.
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-Felix Vezina-Poirier
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11-29-25 1436ET
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