This week, with the futures market was pricing in just a 25% probability of a December rate cut on Wednesday and equity market dropped 4.6% intraday, we finally got some official data release come in to process on the employment side.
Mixed September Job
The form of the September nonfarm payroll payrolls print, which increased 119,000 jobs. This was well above the consensus, which was for 51,000. In addition, the three-month moving average for headline payrolls increased to 62,000 from a downwardly revised 18,000. On its surface, the payrolls report should have been a net negative for the Treasury market. However, on the other hand, what we saw within the details was an unexpected increase in the unemployment rate to 4.4%. On an unrounded basis, it was 4.44%, which effectively means it was close to rounding up to 4.5. Even as it printed, it was the highest unemployment rate since October 2021. Taking some of the edge off of the higher unemployment rate was the fact that the labor force participation rate increased one-tenth to 62.4%. However, at the end of the day, what we saw was 33,000 jobs removed on a net two month revision basis and an unemployment rate that has now reached its highest level since October 2021. But nonetheless, there was enough underlying softness in the September jobs numbers to trigger.
In the wake of the payrolls data, those odds of a December cut had increased to 40%. Now it’s clear that within the employment report, there was something for both the hawks and for the doves, and so I see the release as inconclusive as it relates to December. At the end of the day, I suspect that the path toward a December rate cut in fact got wider, but still largely be a function of the ability of the doves to convince the hawks that another quarter point is warranted before year-end.
Equities as the De Facto Policy Signal
By late November 2025, equity markets had entered a sharp and disorderly sell-off, reversing much of the optimism that had characterized earlier months. What began as a reassessment of stretched valuations quickly evolved into a broader risk-off episode, amplified by thin year-end liquidity and growing uncertainty around the macro and policy outlook.
This has naturally shifted the focus toward the performance of the equity market and an increasingly uncertain outlook for risk assets as we approach year-end. The well-worn narrative around business investment tied to AI, data centers, and marquee technology earnings has done little to arrest the recent drawdown. To be sure, the S&P remains comfortably positive on a year-to-date basis, a level of equity performance that, in isolation, would not typically warrant a monetary policy response. Yet it has been telling that a growing share of discussions has centered less on upside potential and more on valuation risk.
Over these past few weeks, it is increasingly centered on stock valuations and just how much downside will be realized if there is a bit of a rationalization of some of the exuberance that’s driven equities to these levels. Extrapolate that backdrop onto an FOMC decision where the Fed may in fact choose to hold rates steady and it’s not difficult to draw the correlation to periods of monetary policy cycles past. We’re heading into the end of the year, there’s risk off impulses that the Fed does not react to, which only then exacerbates the risk off move heading into December 31st, only to have a relatively quick dovish shift, faced early in the new year.
It is, of course, far too early to assert with high conviction that this precise sequence will unfold between now and New Year’s Eve. Still, it is increasingly evident that the U.S. rates market is looking beyond traditional macro releases and taking its cues from equity market dynamics, treating risk-asset performance as an important guide to the Fed’s reaction function in the weeks ahead.
All About Macros 