Key takeaways
- The labor market is cooling but not crashing, according to BlackRock strategists, arguing for a pause or very limited cuts rather than aggressive easing next year.
- Further cuts would only take place if the labor market deteriorates sharply, which they say is not their base case scenario.
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The Federal Reserve is expected to impose limited rate cuts in 2026, barring a sharp deterioration in the labor market, according to Amanda Lynam and Dominique Bly, senior strategists at BlackRock.
Their outlook reflects recent U.S. labor market data, which points to a slight slowdown but no marked slowdown.
Although the unemployment rate reached 4.6% in November, the highest since 2021, analysts noted that part of the increase was due to higher labor force participation and government job losses rather than a fundamental weakening of working conditions.
From a policy perspective, the Fed continues to view labor risks as balanced, according to BlackRock strategists. The recent data echoes some negative concerns flagged by Chairman Jerome Powell, but does not signal a major breakdown in employment conditions, they said.
With 175 basis points of cuts already implemented since September 2024 and policy rates close to neutral, BlackRock believes there is limited room for aggressive easing in 2026. Further cuts would depend on a sharp decline in the labor market, which they do not expect.
