Fed Governor Waller's Comments on December Rate Cut Amid Weakening Job Market

This analysis is based on the Reuters report [1] of Fed Governor Christopher Waller’s November 17, 2025 statement. Waller cited weak job market data—including rising layoffs (1.099M YTD, up 65% YoY [2]), increasing state unemployment claims (1.702M week ending Oct25, up3.3% YoY [7]), and stable wage growth (3.9% YoY [6])—to justify a 25bp rate cut in December.

Market reaction was mixed: U.S. major indices declined (S&P500 -0.61%, Dow -1.02%, NASDAQ -0.34% [0]), with interest rate-sensitive sectors like Financial Services (-2.41% [0]) and Industrials (-1.49% [0]) underperforming. Defensive sectors (Utilities +0.84%, Healthcare +0.51% [0]) outperformed as investors sought safety. Bank stocks JPM (-1.19% [0]) and BAC (-2.09% [0]) fell due to concerns over net interest margin compression from potential rate cuts.

FedWatch probability for a December rate cut has dropped to ~44-50% (down from 95% a month ago [3][4]), reflecting market uncertainty about the Fed’s decision amid split opinions (some members worry about persistent inflation [1]).

1. Inverse Relationship Between Rate Cut Expectations and Financial Sector Performance
   : The Financial Services sector’s underperformance (-2.41% [0]) directly correlates with increased rate cut expectations, as lower rates compress bank net interest margins.
2. Shift in Market Sentiment
   : Market confidence in a December rate cut has plummeted from 95% to ~44-50% [3][4], indicating a significant shift in investor expectations.
3. Flight to Safety
   : Defensive sectors (Utilities, Healthcare) outperformed as investors moved away from interest rate-sensitive and cyclical sectors amid economic uncertainty.
4. Job Market Weakness as a Key Policy Driver
   : Waller’s focus on job market data highlights its importance in the Fed’s rate decision-making process, even as inflation data remains delayed due to the government shutdown.

• Financial Sector Margin Compression
  : Potential rate cuts may further reduce net interest margins for banks like JPM and BAC, impacting profitability [0].
• Cyclical Sector Vulnerability
  : Weak job market trends (rising layoffs [2]) raise concerns about consumer spending, which could harm cyclical sectors like Consumer Cyclical (-1.13% [0]).
• Uncertainty from Delayed Data
  : Missing inflation reports (October/November CPI) due to the shutdown create ambiguity about the Fed’s dual mandate compliance.

• Defensive Sector Safety
  : Utilities and Healthcare sectors have shown resilience amid market volatility, presenting potential safe-haven opportunities for investors.

• Job Market Metrics
  : October 2025 layoffs (153k [2]), YTD layoffs (1.099M [2]), state unemployment claims (1.702M [7]), wage growth (3.9% YoY [6]).
• Market Performance
  : S&P500 (-0.61% [0]), Dow (-1.02% [0]), Financial Services (-2.41% [0]), Utilities (+0.84% [0]).
• Rate Cut Expectations
  : FedWatch probability ~44-50% [3][4] (down from 95% a month ago).
• Affected Stocks
  : JPM (-1.19% [0]), BAC (-2.09% [0]).

This report provides market context and is not investment advice. Users should conduct their own research before making decisions.