US Jobless Rate Seen Holding at 4.6%

The US labor market remains stuck in a grey zone, with fresh estimates pointing to a steady jobless rate but growing caution among employers, leaving the Federal Reserve torn between further interest-rate cuts and a temporary pause.

The Federal Reserve Bank of Chicago estimates that the US jobless rate held at 4.6% in December, unchanged from November, reinforcing the view among policymakers that hiring has slowed while layoffs remain largely contained. Though unofficial, the estimate is closely watched ahead of the government’s employment report due on Friday.

Economists surveyed by Reuters expect the official jobless rate to edge slightly lower to 4.5%, a marginal difference that could nonetheless influence the direction and tone of US monetary policy.

“The labor market is cooling, but it is not breaking,” analysts say, describing an economy that is gradually losing momentum without slipping into sharp deterioration.

The Federal Reserve cut interest rates last month after a majority of policymakers concluded that a softening labor market now poses a greater risk to the economy than elevated inflation. Even so, officials have signaled they may pause early this year while assessing whether the slowdown deepens.

Financial markets currently assign a low probability, around 10%, to a rate cut at the Fed’s January meeting, according to futures pricing. Expectations rise to roughly 55% by April, reflecting uncertainty over how quickly labor conditions may weaken.

Morgan Stanley argues that a jobless rate holding at 4.6% would keep the option of an early rate cut alive, while analysts at Oxford Economics say a decline to 4.5% could prompt the Fed to maintain its current stance until mid-year.

Weekly data on jobless claims paint a similarly mixed picture. Initial claims for unemployment benefits increased by 8,000 to 208,000 in the week ending December 27, slightly below market expectations and still consistent with a relatively resilient labor market.

Seasonal distortions linked to year-end holidays have made weekly figures volatile, but the broader trend suggests a labor market in limbo: companies are holding back on hiring without resorting to widespread layoffs.

Business hesitation is being driven in part by uncertainty surrounding future trade tariffs, as well as the rapid adoption of artificial intelligence, which continues to reshape workforce needs across industries.

A report from Challenger, Gray & Christmas shows that announced layoff plans in 2025 surged 58%, reaching their highest level in five years, with the bulk of cuts concentrated in the federal government and the technology sector.

Meanwhile, planned hiring fell 34% to its lowest level since 2010, suggesting that displaced workers are spending longer periods out of work, even as mass layoffs remain under control.