Final “Super Week”: Nonfarm Payrolls And CPI Arrive Intensively — How Many Rate Cuts Will The Fed Deliver Next Year?

Debate in U.S. financial markets over the Federal Reserve’s prospective rate‑cut trajectory is set to intensify as a cluster of pivotal economic releases arrives this week. For many market participants, these forthcoming reports constitute the last major data “super week” of 2025.

The long‑delayed monthly nonfarm payrolls and inflation figures will be published in the coming days, filling gaps created by the recent government shutdown, and additional employment data are scheduled for early January. Collectively, these indicators will help determine a central question for the start of 2026: after three consecutive rate cuts, is the Fed approaching the end of its easing cycle, or will further, more aggressive reductions be required?

This question carries particular weight for bond traders, who currently price in two rate cuts next year to support the labor market and the outlook, despite inflation remaining elevated. That market expectation exceeds the Fed’s dot‑plot guidance from last week by one cut. If market pricing proves accurate, Treasuries and equities could embark on another robust rally, with U.S. government bonds on track for their best annual performance since 2020.

George Catrambone, Head of Americas Fixed Income at DWS, identified Tuesday’s employment report as the single most important data point for next year’s rate path, noting that the labor market’s direction will determine interest‑rate dynamics. Catrambone is among analysts who expect the Fed may need to cut rates more deeply than currently anticipated; he increased Treasury holdings last week when yields spiked to multi‑month highs. Several Wall Street traders are also positioning in options that would profit if markets shift toward pricing a first‑quarter rate cut. Current market pricing does not fully reflect another cut before mid‑2026, with a second cut expected around October.

Attention has turned to the backlog of delayed data. Following last week’s Fed meeting, the November employment report due Tuesday is expected to influence borrowing‑cost expectations for 2026. Consensus estimates point to a November nonfarm payrolls gain of 50,000. Previously delayed figures showed September payrolls up 119,000, exceeding forecasts, while the unemployment rate rose to 4.4%, the highest since 2021. The upcoming release will also include the postponed October payrolls, although the Bureau of Labor Statistics has indicated that October’s unemployment‑rate estimate will be unavailable because the household survey could not be conducted.

Macro strategist Ed Harrison observed that the December 16 jobs report represents the next critical test for the Treasury rally, adding that if November payrolls undershoot the 50,000 consensus, bond markets could extend their advance and bring forward the fully priced timing of the first cut from June to April. Kevin Flanagan, Head of Fixed Income Strategy at WisdomTree, argued that the threshold for a January rate cut has risen and that clear evidence of cooling in the employment data will be required. Flanagan warned that if November payrolls remain near September’s higher level, Treasuries could sell off and push the 10‑year yield toward 4.25%. He also cited research suggesting a neutral rate near 3.5%, implying limited scope for further easing.

These assessments echo Fed Chair Jerome Powell’s recent remarks that policy rates now lie within officials’ estimates of the neutral range, a statement some interpret as signaling constrained room for additional easing. Swap‑market pricing currently implies the Fed may conclude the easing cycle around a policy rate near 3.2%.

Beyond payrolls, the government shutdown delayed the release of another key indicator: the consumer price index. The November CPI report, due Thursday, is expected to show both headline and core year‑over‑year inflation at 3.0%, with month‑over‑month increases of 0.3%. Inflation therefore remains above the Fed’s 2% objective. The Commerce Department will also publish October retail sales on Tuesday; economists forecast core retail sales excluding autos and gasoline to rise 0.2% month‑over‑month, signaling that consumer demand remained relatively firm at the start of the fourth quarter.

Political developments add another dimension to market focus. With President Trump pressing for substantial rate cuts, attention has shifted to the selection of the Fed chair when Jerome Powell’s term expires in May; the nomination process is reportedly in its final stages. Janet Rilling, Head of Fixed Income at Allspring Global Investments, commented that a new chair could tilt the Fed toward a more dovish stance regardless of whether the economy is overheating. She noted that the labor market could provide cover for policy adjustments, and that even modest softening in employment conditions might be used to justify further easing.