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Will the Fed’s December decision slow rising unemployment?

December 17, 2025

Federal Reserve (the Fed) kept its unemployment forecast steady in the latest Summary of Economic Projections (SEP), but Fed Chair Jerome Powell stressed that labor market risks lean to the downside. Payrolls are being mentally discounted by about 60,000 jobs per month, signaling underlying weakness despite stronger growth projections, believes Portfolio Strategist Garrett Melson. If unemployment continues to increase, he expects more rate cuts. “The Fed’s stance makes it clear: labor market weakness is the swing factor. If unemployment keeps climbing, policy will lean dovish,” said Melson.

 

Median unemployment rate projection
Median unemployment rate projection Source: US Federal Reserve.
  • Unemployment has climbed roughly 1% over the past 2.5 years, according to the Bureau of Labor Statistics.
  • Stronger growth and rate cuts beget a stabilization in unemployment, believes Melson.
  • December’s SEP projects unemployment easing gradually from 4.50% in 2025 to 4.20% by 2028, slightly more optimistic than September’s forecast, but still signaling a slow path to improvement.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

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