US Non-farm Payrolls (NFP) unexpectedly "blew past expectations"! The Federal Reserve (FED) faces a divide on interest rate cuts in December, with Powell facing an impossible task.

On November 20, the U.S. non-farm payroll data unexpectedly soared, with 119,000 new jobs added in September, far exceeding market expectations of 50,000, reversing the loss of 4,000 jobs after the downward revision in August. The unemployment rate slightly rose to 4.4%, the highest level since October 2021. This report, which ends the “data vacuum” of a 44-day government shutdown, makes the Federal Reserve's interest rate decision more complex.

Non-farm data exceeded expectations by 2 times, ending a 44-day data vacuum

On Thursday, according to the highly anticipated report released by the U.S. Bureau of Labor Statistics (BLS), the U.S. economy added a significantly higher number of jobs in September than expected. Non-farm payrolls increased by 119,000 this month, far exceeding the Dow Jones' consensus estimate of 50,000 new jobs for September, indicating that the actual figure is 2.38 times the expectation. Furthermore, July's job additions were also revised down to 72,000, a decrease of 7,000 from the previously reported figure.

In addition to the employment headline data, the BLS reported that the unemployment rate rose slightly to 4.4%, the highest level since October 2021. The average hourly wage in September increased by 0.2% month-on-month and 3.8% year-on-year, both lower than the market's forecasts of 0.3% and higher than 3.7%, respectively. The slowdown in wage growth indicates that the labor market is cooling down, but the strong performance of non-farm payroll data partially offsets this interpretation.

This report ends a record-breaking 44-day government shutdown that began in early September, which created a “data vacuum” in the labor market. During this period, several government agencies, including the Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis, were prohibited from collecting or releasing economic data. This is also the first employment report released by the BLS since the August employment data published on September 5.

The market reaction immediately reflected this complexity. Spot gold rebounded to $4,087.32 per ounce after a temporary drop, recovering from the decline post-non-farm payrolls. Unexpectedly positive data will strengthen the positions of hawkish members of the Federal Open Market Committee, who have consistently warned that the Federal Reserve should not cut interest rates too quickly. Traders are also continuing to bet that the Federal Reserve will keep interest rates unchanged at the meeting on December 9-10. This is also the last employment report that Fed officials will receive before that meeting.

Another data released by the U.S. Department of Labor on Thursday showed that for the week ending November 15, the number of initial jobless claims was 220,000, a decrease of 8,000 from the previous week, better than the market expectation of 227,000. This further confirms the resilience of the labor market.

Employment growth is diverging, with healthcare leading and transportation plummeting

The source of employment growth in September remains concentrated in familiar industry structures but shows significant differentiation. The healthcare sector added 43,000 jobs, consistent with trends over the past year, continuing to be the largest engine of job growth. Bars and restaurants contributed 37,000 jobs, demonstrating the resilience of the service industry amid economic fluctuations. The social assistance sector increased by 14,000.

Downside signs are worrying. The transportation and warehousing industry decreased by 25,000, which may reflect a slowdown in e-commerce growth and a decline in logistics demand. The federal government sector decreased by 3,000, with a total annual decrease of 97,000, which had previously been an important source of employment growth. The continued decline in government employment suggests that fiscal tightening policies are having a tangible impact.

The household survey used to calculate the unemployment rate shows stronger employment signals, which forms an interesting contrast with the non-farm data from the business survey. The total number of jobs increased by 251,000, the labor force size increased by 470,000, reaching a record 171.2 million, and the labor force participation rate slightly rose to 62.4%, the highest since May.

Non-Farm Payroll Key Numbers

New Jobs Added: 119,000 (Expected 50,000, Exceeded Expectations by 138%)

Unemployment Rate: 4.4% (Previous value 4.3%, highest since October 2021)

Wage Growth: Month-on-month 0.2%, year-on-year 3.8% (below expectations)

Labor Force Participation Rate: 62.4% (highest since May)

This divergence between household surveys and business surveys adds uncertainty to the Federal Reserve's interest rate decision. Strong data from household surveys support a hawkish stance, while the relatively mild business surveys provide arguments for a dovish approach.

The Federal Reserve (FED) interest rate cut has fallen into serious division, with a minority possibly becoming a majority

(Source: The Wall Street Journal)

Nick Timiraos, a prominent journalist from The Wall Street Journal known as the “The Federal Reserve (FED) mouthpiece,” stated that according to the minutes of the FED's October meeting released Wednesday afternoon local time, the policymakers' disagreements on whether to cut interest rates next month are deepening, leading to an increasing number of officials—possibly forming a narrow majority—holding reservations about a rate cut in December.

The minutes of the meeting, which were delayed by three weeks as per usual, show: “Participants expressed sharply differing views on what policy decision would be most appropriate at the December meeting.” Last month, the Federal Reserve (FED) voted 10 to 2 to lower interest rates by 25 basis points, bringing the rate range down to 3.75%-4%. However, the minutes revealed that several officials—likely regional Federal Reserve chairmen who participated in discussions but did not have voting rights—opposed this rate cut decision.

The minutes reveal a rare division in recent years: the committee is severely split on the next course of action. The meeting records indicate that “many” officials believe there is insufficient justification for a rate cut in December—the number of these officials exceeds the number of officials who think a cut is “likely appropriate.” However, the minutes also suggest that, following the December meeting, a majority of officials still consider further cuts necessary.

Investors who once viewed the interest rate cut at the meeting on December 9-10 as a foregone conclusion have recently begun to believe that the outcome is uncertain. After the Labor Department announced on Wednesday that the employment data for October, originally scheduled to be released on November 7, would be postponed until after the Federal Reserve meeting, the market's implied probability of a rate cut has plummeted to about 33%. Investors seem to think that if there is a lack of new employment data revealing signs of economic weakness, officials' willingness to support a rate cut in December will decrease.

Intense confrontation between hawks and doves, Powell faces an impossible task

Due to the lack of conventional economic indicators, Federal Reserve officials face more difficult policy judgments. Following consecutive interest rate cuts in September and October, whether to cut rates again in December has become more sensitive. The minutes from the Federal Reserve's October meeting indicate that several officials emphasized the difficulties of making policy decisions in the absence of data and expressed caution regarding further rate cuts in December.

The labor market situation is the core focus of these divergences. Some policymakers are concerned that weak economic demand will lead companies to reduce their workforce. Waller pointed out on Monday that more companies “are starting to discuss layoffs.” This group of officials has relatively lighter concerns about inflation, believing that an economic downturn will limit companies' ability to raise prices. They are worried that overly emphasizing the ongoing inflation risk could cause the economy to slip into recession unconsciously.

Another group of officials believes that the economy will continue to grow moderately, and they are concerned that the inflation rate, which has been above The Federal Reserve (FED)'s 2% target for four consecutive years, may continue to rise due to tariff-related price increases for another two years. These officials warn that companies, having successfully passed on costs after the pandemic, may become bolder, keeping the inflation rate slightly below 3%, making it difficult to return to the 2% policy target. Notably, this faction is expanding.

The Chairman of the Federal Reserve, Jerome Powell, is facing an almost impossible task: bridging divides and building consensus. Evercore ISI analyst Krishna Guha pointed out, “Unless luck intervenes and data miraculously points the way, he can only choose the lesser of two evils.” Despite criticism that the culture of consensus at the Federal Reserve has fostered “groupthink,” Governor Waller clearly stated on Monday that next month will be markedly different: “Be prepared, you may witness the least common phenomenon of 'non-groupthink' in the Federal Open Market Committee's history.”

At the press conference following last month's meeting, Powell took the initiative to mention that a rate cut in December is not a done deal. He emphasized in an unusually candid tone: “Far from it,” and stated, “More and more members now believe we should at least pause and discuss it again at the next meeting.” This rare public statement indicates that Powell has recognized the seriousness of the internal divisions.