The Fed's Turning Hawkish as This U.S. Employment Indicator Flashes Red

With the federal government continuing in shutdown mode, there continues to be a dearth of official economic statistics, including the all-important monthly Nonfarm PayRolls Report, which plays a large role in informing the Federal Reserve's monetary policy.

It's thus elevated the status of some lesser-followed reports and at least one is flashing a major red signal for the labor market.

That would be the monthly job cuts report from outplacement firm Challenger, Gray & Christmas. The October data released Thursday morning showed 153,074 layoffs last month — that's almost triple the amount seen in October of 2024 and the highest print for any October going back to 2003.

"This comes as AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes," said Challenger. "Those laid off now are finding it harder to quickly secure new roles, which could further loosen the labor market."

Zooming out paints just as grim of a picture, with job cuts year-to-date now topping 1 million, up 65% from the year-ago level and the highest amount since the Covid panic of 2020.

The October print for hiring is similarly weak, with just 372,520 hiring plans for the month, the smallest number since Challenger began tracking that data in 2012.

Ball in Fed's court

Crypto markets continue to reel from last week's hawkish surprise from the Fed, in which the central bank trimmed its policy rate (as expected), but Chairman Jerome Powell used his press conference to suggest market participants were highly mistaken in assuming another rate cut in December.

Since, a number of Fed speakers have followed suit, with at least two saying that had it been up to them, they wouldn't have even cut rates last week.

The news was surely among the factors that sent crypto plunging over the past eight days, with bitcoin BTC$87,916.36 falling below $100,000 before its small bounce this morning back to $103,000.

Yes, inflation was among the Fed worries, but the revitalized hawks are also suggesting the employment market is in solid shape and thus in no need of monetary stimulus. Powell also pointedly noted the government shutdown and lack of official statistics means the central bank is mostly flying blind as it tries to decipher the economy.

The Fed's reaction to today's shocking Challenger data will be interesting to note. For now., traditional markets aren't waiting. The 10-year Treasury yield has tumbled six basis points to 4.10% and market-based odds of the Fed cutting in December have risen to 69% from 60% earlier in the week.