Shenwan Hongyuan Group: What is the probability of consecutive interest rate cuts by the Federal Reserve in January 2026?

Shenwan Hongyuan Group released a research report stating that the overall non-farm employment in the United States decreased in October-November, with the unemployment rate rising from 4.4% in September to 4.6% in November. In the short term, the unemployment rate in the U.S. is "easily up difficult down," with demand being a weak point, but the job market may gradually "rebalance" by 2026. In the short term, tariff impacts, government shutdowns, and AI will continue to suppress demand. However, by 2026, the U.S. labor supply may still shrink (due to intensified immigration policies), while demand stabilizes gradually (tariff impacts ease, government layoffs mitigate), leading to a stable level of employment. The research also mentioned that the probability of a rate cut by the Federal Reserve in January has not necessarily increased, and further observation of economic data in December is needed. The credibility of the unemployment rate data is limited, as Powell also mentioned at the December meeting that employment data may be distorted. Additionally, retail performance in the U.S. in October, published at the same time as employment data, was not weak, potentially reflecting a strong start to the holiday shopping season. The main points highlighted by Shenwan Hongyuan Group are as follows: The U.S. unemployment rate in November exceeded expectations, rising to 4.6%, just a step away from triggering the "Samuelson rule." What are the factors driving the increase in the unemployment rate, and what is the likelihood of consecutive rate cuts by the Federal Reserve in January 2026? Overview: Non-farm employment in the U.S. decreased slightly from October to November, with the unemployment rate rising to 4.6% in November. The survey showed that non-farm employment in the U.S. increased by 64,000 in November, after decreasing by 105,000 in October. In November, average hourly wages increased by 0.1% month-on-month, below the market expectation of 0.3%; in terms of household surveys, the U.S. unemployment rate rose to 4.6% in November, while the labor force participation rate increased to 62.5%. After the data was released, U.S. stocks fell back, gold rose, 10-year U.S. Treasury bond yields, and the U.S. dollar index first fell and then rose, making it difficult to argue about "recession fears". The market response to the release of November employment data was relatively minor, with 10-year U.S. Treasury bond yields and the U.S. dollar index both first falling and then rising, and the overall trend not heavily impacted by the employment data; U.S. stocks only showed an uptick at the time of the data release, then fell back. Structure: What does the 4.6% unemployment rate reflect? Temporary layoffs and improvement in labor supply are the main reasons behind it. The government's "delayed resignation" program led to a decrease in employment in October, with the impacts of tariffs and AI also evident. Non-farm employment in the U.S. decreased by 105,000 in October, mainly affected by the government's "delayed resignation" program; from October to November, the performance of employment in the private sector varied, with the construction and education sectors showing signs of improvement, while the finance and information sectors' employment performance was weak. The U.S. unemployment rate in November rose to 4.6%, exceeding market expectations, but the credibility may be low. 1) The critical point for triggering the "Samuelson rule" is a 4.7% unemployment rate; 2) The increase in the number of unemployed people in November was mainly due to temporary layoffs and re-entry of labor force participants, which corresponded to the rise in the participation rate in November; 3) The U.S. Department of Labor reported that the response rate for the household survey in November was only 64%, below the normal level. Outlook: Will the probability of a rate cut by the Federal Reserve in January 2026 increase? Not necessarily, further observation of economic data in December is needed. In the short term, the unemployment rate in the U.S. is "easily up, difficult down," with demand as the weak point, but the job market may gradually "rebalance" by 2026. In the short term, tariff impacts, government shutdowns, and AI will continue to suppress demand. However, by 2026, the U.S. labor supply may still shrink (due to intensified immigration policies), while demand stabilizes gradually (tariff impacts ease, government layoffs mitigate), maintaining a low level of balanced employment. The probability of a rate cut by the Federal Reserve in January has not necessarily increased, further observation of economic data in December is needed. The credibility of the unemployment rate data is limited, as Powell also mentioned at the December meeting that employment data may be distorted. Additionally, retail performance in the U.S. in October, published at the same time as employment data, was not weak, potentially reflecting a strong start to the holiday shopping season. Risk Warning Escalation of geopolitical conflicts; U.S. economic slowdown exceeding expectations; Federal Reserve unexpectedly shifting towards a more hawkish stance.