Weakening U.S. Job Market Raises Fed Rate Cut Expectations Amid Pandemic-Level Layoffs

The December 4, 2025, MarketWatch article [1] highlights the U.S. job market’s deepening weakness, which has become a key driver of Federal Reserve policy expectations. Core data from multiple sources supports this trend:

• Challenger, Gray & Christmas reported 1.17 million job cuts through November 2025, a 54% increase from 2024 and the highest since the 2020 pandemic [3].
• The ADP private-sector payroll report (December 3) showed a surprising loss of 32,000 jobs, contradicting economist expectations of growth [2].
  These developments led to immediate market reactions: U.S. Treasury yields fell on December 3 (10-year: 4.05% from 4.09%, 2-year: 3.49% [2]), while Fed funds futures now price an 85-90% probability of a 25-basis-point rate cut at the upcoming FOMC meeting [2]. Rate-sensitive sectors like utilities outperformed on December 3 (+2.16% [0]), while real estate (-0.26%) and tech (-0.58%) faced headwinds [0]. By December 4, major indices (Dow, S&P 500, NASDAQ) saw minor declines, likely reflecting profit-taking after initial gains [0].

1. Data Uncertainty from Government Shutdown
   : The Labor Department’s nonfarm payrolls report—originally scheduled for December 5—has been delayed to December 16 due to the government shutdown, leaving a critical gap in assessing the job market’s full health [2].
2. Layoff Drivers Extend Beyond Cyclical Factors
   : Challenger’s report cites restructuring, AI adoption, and tariffs as specific reasons for layoffs, indicating structural shifts alongside cyclical weakness [3].
3. Rate Cut Expectations as Market Catalyst
   : The combination of weak job data and elevated layoff numbers has transformed rate cut expectations from a possibility to a near-certainty, driving short-term bond and sector movements [2].

• Recession Vulnerability
  : Historical data links high layoff numbers and job losses to impending recessions, raising concerns about broader economic contraction [3].
• Consumer Spending Downturn
  : A weakening job market could reduce consumer confidence and spending, a key driver of U.S. economic growth [0].
• Policy Uncertainty
  : While a December rate cut is expected, the Fed’s dot plot and Chair Jerome Powell’s comments will shape expectations for future cuts, introducing uncertainty [2].

• Rate-Sensitive Sectors
  : If the Fed cuts rates, sectors like utilities, real estate (longer-term), and fixed-income assets may continue to benefit [0].

As of December 4, 2025, the U.S. job market shows significant weakness: 1.17 million layoffs through November (pandemic-level), a 32,000 private-sector job loss in November, and falling Treasury yields reflecting heightened Fed rate cut expectations (85-90% probability of a 25-bp cut in December). Rate-sensitive sectors led gains on December 3, but major indices dipped on December 4. The delayed nonfarm payroll report and Fed communication at the December FOMC meeting will be critical for clarifying the economic outlook.