Commerzbank AG stated that the US Federal Reserve may be headed for several rate reductions in 2026 even though a pause in interest rates is likely to occur in January.
In recent months, the US labour market has seen a significant slowdown in its momentum.
In November, the US economy added only 64,000 new jobs.
This number represents a significant deceleration of employment gains. It raises concerns over the health and the momentum of the economy.
Jerome Powell, Chairman of the Federal Reserve Board recently expressed his opinion that this 64,000 reported figure for employment may be an overestimate in terms of true job growth.
US Job Growth
Powell’s conservative perspective indicates that, when considering various nuances, and possible statistical distortions the pace of actual employment growth may be even slower than what the official report suggests, and a more gradual recovery is expected in the labor sector.
Analysts at Commerzbank AG stated in a recent report that “this is due to the fact that it must be first estimated how much contribution newly established or closed businesses will make.”
Comparing these assumptions with the comprehensive data on social security has demonstrated that they were way too optimistic for quite some time.
Powell says that job growth reported may be exaggerated by up to 60,000 jobs per month, which could indicate a lack of actual employment.
The expected job growth in December is slightly higher than the November figures.
Analysts believe that this expectation stems primarily from the likely negative impact of the shutdown (partial federal government closing) on the business activity in November, especially for subcontractors working with the public sector.
A certain recovery is therefore likely. Next month, we expect the report to reveal that there were 80,000 jobs created in December.
The unemployment rate is a key issue
The Fed is most likely to focus on unemployment rates in particular.
Analysts at Commerzbank said that part of this weakness is due to the fact fewer people enter the labor market because immigration laws are more restrictive.
Fed chair Powell believes that the current unemployment rate is a better reflection of how the labor market is doing.
Since 2022/23, the unemployment rate increased by one full percentage point.
We expect the rate to stay at 4,6% in December. “The Fed will probably be less concerned with inflation risk than the labour market,” said the German bank.
The rate would remain at the same level in 2026 even though a break is likely to occur in January following three successive steps.
US Gross Domestic Product Growth
Expect the release of US GDP data for the third-quarter.
The shutdown caused this publication to be delayed by about two months.
Commerzbank forecasts a strong increase of 3.2% (quarter on quarter, annualized rate).
According to source data, the US economy has experienced broad growth. The only sector that saw a contraction was the construction industry, both residential and commercial.
The third-quarter economic momentum was slowed, with the likely addition of the shutdown.
The fourth quarter is expected to be a period of significant slowdown in US economic growth.
Analysts added: “However we don’t see that the recovery is at risk, as the financing conditions are still favourable.”
The content of this article Weak Labour Market, Not Inflation, Will Drive Multiple Fed Rate Cuts in 2026 – Says Commerzbank, may change as new information becomes available.
