US Job Market Holds Steady in December, But Slower Growth Raises Fed Policy Concerns for 2025

As the year comes to a close, the US job market appears to have remained resilient, with forecasts suggesting solid job gains in December. Analysts expect the economy added approximately 164,000 new jobs, which marks a slowdown from November’s pace but still reflects a robust performance, contributing to a projected total of 2.15 million new jobs for 2024. While the job market has remained firm overall, the signs of slower growth could impact Federal Reserve policy decisions as we head into 2025.

The employment report due on Friday is expected to show key trends, such as moderation in wage growth. Many companies are increasingly hesitant to make significant salary hikes for new employees, signaling a “no hire, no fire” scenario. Firms are reluctant to let go of existing workers but also lack the confidence to offer higher salaries due to uncertainty about the near-term economic outlook.

Recent data from ADP, the payroll processing giant, has shown a smaller-than-expected gain of 122,000 jobs in December, along with the slowest wage growth since July 2021. This suggests that while the job market remains stable, the pace of hiring is cooling off. ADP’s chief economist, Nela Richardson, described the labor market’s growth as “downshifted,” noting a noticeable slowdown in both hiring and pay increases as 2024 wrapped up.

In line with these findings, analysts are forecasting a 0.3% increase in monthly wages for December, a slight dip from November’s 0.4% gain. The unemployment rate is expected to remain at 4.2%, reflecting the labor market’s steady state, with an anticipated average unemployment rate of around 4.04% for 2024.

Despite the more moderate pace of growth, other data points show solid momentum. According to Challenger, Gray & Christmas, a firm tracking layoffs, there were just under 39,000 job cuts in December—a significant 33% decline from November. The fourth quarter saw a drop in layoffs by 13% compared to the same period the previous year, which could be seen as an indication of ongoing stability.

However, as the US enters 2025, uncertainty is building. The Federal Reserve’s December meeting minutes highlighted concerns about inflation pressures, particularly linked to potential policy changes under the incoming administration. While the US economy has shown resilience, policymakers are wary of the impact of potential tariff and tax changes under President-elect Donald Trump. The Fed’s minutes suggested that such shifts, along with higher-than-expected inflation readings, could lead to a longer-than-anticipated recovery.

This growing uncertainty has implications for Federal Reserve interest rate decisions in 2025. Currently, market expectations, as reflected by CME Group’s FedWatch tool, indicate that only one quarter-point rate cut is likely, with the move potentially occurring as soon as May 2025. However, the balance between inflation and employment remains delicate. If job growth weakens while inflation pressures tied to changes in trade and immigration policies remain high, the Fed’s ability to meet its dual mandate of price stability and full employment may be put to the test.

With these uncertainties hanging in the balance, the outlook for 2025 remains unclear. While the job market’s strength provides some comfort, the evolving economic environment and potential policy shifts may influence both hiring trends and Federal Reserve actions in the months to come.