WRAPUP 3-US jobs data cements Fed rate cut this month as debate turns to 2025 outlook

Federal Reserve officials appear more likely to cut interest rates this month after data showed the U.S. labor market remained strong but continued to cool in November, with a deeper debate to come next year over whether to pause further reductions in borrowing costs. U.S. employers added 227,000 jobs last month, a rebound from a hurricane-impacted slowdown in October, but the unemployment rate ticked up to 4.2%, the Labor Department's monthly employment report showed on Friday. Averaged over the last four reports, monthly job gains are now just below 150,000, somewhat short of what many economists feel is needed to provide enough work to match a growing population, but nothing like the collapse Fed policymakers worried could happen when they began cutting interest rates a few months ago.

"To me, that feels like it's in that sustainable, full-employment kind of space," Chicago Fed President Austan Goolsbee said of the report, adding that he feels inflation, despite recent disappointing stickiness, also looks headed toward the U.S. central bank's 2% target. Though declining to pre-commit to a rate cut this month, Goolsbee said at an event hosted by his regional Fed bank that it's clear to him that by next year "rates are going to be a fair bit lower than where they are today."

The financial market reaction to the latest jobs data was more decisive, with traders pricing the probability of a rate cut at the Fed's Dec. 17-18 policy meeting at nearly 90%, from less than 70% before the release of the report. A quarter-percentage-point reduction would bring the Fed's policy rate to the 4.25%-4.50% range, a full percentage point below where it was in September when the central bank began its easing cycle. Traders now see short-term borrowing costs dropping another 75 basis points next year.

"It's not exactly a wonderful economy, but it's also an economy that doesn't seem to be decelerating as sharply as everyone expected a few months ago," TD Securities analyst Gennadiy Goldberg said, citing the average payroll growth of about 150,000 jobs in recent months. "The Fed can safely deliver another rate cut in December and then maybe communicate a possible pause coming as soon as the January meeting." Fed Governor Christopher Waller at the start of this week said he was "leaning towards" a rate cut but would reserve final judgment to review the latest jobs numbers as well as inflation data due next week.

'PROCEED CAUTIOUSLY' On Wednesday, Fed Chair Jerome Powell gave little sense he disagreed, noting that inflation was running at a higher rate than policymakers had expected at this point, and repeated his prior comments that the central bank could be careful in managing the endgame of its roughly three-year fight against inflation. Powell's caution may come more into play next year, with many analysts expecting the Fed to pause the easing after delivering a cut on Dec. 18.

At least one of the Fed chief's colleagues may prefer a nearer-term breather. "I continue to see greater risks to the price-stability side of our mandate, especially when the labor market continues to be near full employment," Fed Governor Michelle Bowman told the Missouri Bankers Association Executive Management Conference. With that in mind, "I would prefer that we proceed cautiously and gradually in lowering the policy rate, as inflation remains elevated." San Francisco Fed President Mary Daly and Cleveland Fed President Beth Hammack, who also were speaking on Friday, are likely to be the last policymakers to comment publicly before the upcoming rates decision.

The Fed's internal communications rules forbid public comments on monetary policy beginning on the Saturday preceding the week before each two-day meeting.

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