Fed changed hawkish tone after an uptick in unemployment rate

 

·         Latest US jobs data indicates a higher unemployment rate amid higher labor force participation due to reverse immigration; tech & other layoffs.

·         The US economy may be heading for stagflation, if not recession, in 2026 amid Trump policy chaos, Fed credibility, a looming subprime/prime crisis, and AI bubbles.

·Although the Fed may cut 25 bps in Dec'25, going forward, the Fed may have to launch QE-4 in 2026, along with crisis-era rate cuts to almost ZRIP, to fight an all-out recession.

On November 20, 2025, apart from Trump's Ukraine plan and Fed talks, the focus of the market was also on the U.S. NFP/BLS delayed job report for September'25, which may help the Fed to decide on any rate cuts at the forthcoming December 10 FOMC meeting, despite lingering data drought after 43-days US government shutdown drama, hampering official data collection process.

The BLS Establishment Survey

The latest BLS establishment survey flash data (seasonally adjusted) shows that the U.S. economy (Private + Public/Government sector) added +119K Non-Farm Payroll (NFP) jobs in September'25 against -4K sequentially (m/m); +240K yearly (y/y), higher than the median market expectations of +50K. The US NFP employment covers public (government) and private sector employees/jobs, excluding the farming/agri industry.

After the latest revisions, the 3M rolling average (3MRA) of US NFP job additions was around +62K against +18K sequentially. The 2025 average (YTM) was around +76K against +168K in 2024 and +166K in 2019 (pre-COVID-Trump trade war 1.0). The US job market may now be under meaningful stress due to Trump's uncertain, bellicose policies on tariffs, immigration & deportation despite the so-called big & beautiful bill (fiscal stimulus).

Overall, the nominal number of US NFP employees was around 159626K in Sep'25 vs 152292K in Feb'20 (pre-COVID), and the current trend is indicating around 160000K payroll employees by Dec'25. Although the Fed's preference was around +200K (175-225) in the pre-COVID era, considering a higher labor force amid higher immigration and a higher working-age population, the Fed may now prefer a +175K average run rate of NFP Payroll job addition for its maximum employment mandate. But after Trump's anti-immigration steps, and subsequent lower growth in the US labor force, the Fed may stick to the pre-COVID era standard R/R of +200K/M NFP job addition or even higher to keep the US unemployment rate below 4.0% as a part of its maximum employment mandate.

The BLS flash data also shows the U.S. private sector (only private establishment/business employees) added +97K payroll jobs in September'25 against an addition of around +18K sequentially (m/m) and +208K yearly (y/y), higher than the median market expectations of +60K.

After the latest revisions, the 3M rolling average (3MRA) of US private NFP job additions was around +57K against +16K sequentially in Sep'25. The 2025 (YTM) average of US private payroll job addition was around +72K against the 2024 average of +130K, against the 2019 average of +148K. The pre-COVID longer-term (2014-19) average private payroll job addition was around +174K, indicating significant stress in the private sector, amid Trump policy uncertainty. The 2025 average ADP private payroll job addition till Oct'25 was around +60K against the BLS' figure of +72K up to Sep'25. Both BLS and ADP data are converging gradually after reconciliation, and as the year progresses.

Overall, the nominal number of US NFP private employees was around 136028K in Sep'25 vs 129435K in Feb'20 (pre-COVID).

The latest BLS Establishment survey flash data also shows the Government payroll, i.e., employment in Federal, state, and local governments added around +22K jobs in Sep'25 against -22K contraction sequentially (m/m); +32K yearly (y/y), and higher than the market expectations of -10K contractions.

After the latest revisions, the 3M rolling average (3MRA) of US Government NFP job additions was around +5K against +3K sequentially in Sep'25.

Overall, the nominal number of US Government NFP employees was around 23560K in Dec'24 vs 23598K in Sep'25. Federal Government payroll jobs under Trump 2.0 are now under huge stress due to Trump's perceived & flawed fiscal austerity narrative and DOGE's kick-out action. Trump is now trying to abolish as many Federal Government jobs as possible to make the US economy driven by only the private sector, ensuring higher efficiencies and productivity. But this policy is not working, and no economy in the world can survive only on the private sector. Also, although Trump is trying to be 100% capitalist, some of his actions, like buying stakes of certain private companies, including chips and rare earth materials, are equivalent to state-sponsored socialist policies. Trump's plan to provide $2000 'tariffs' check to most of the Americans (lower end of the pyramid) will make them shy even China and Russia- the so-called kings of socialist & communist policies.

After the latest revision, the 2025 (YTM) average for the US government payroll was around +4K against +38K in 2024 and 18K in 2019 (pre-COVID). The longer-term pre-COVID (2014-19) average government payroll addition was around +36K.

Overall, in the last six months, under Trump 2.0, the US economy has lost significant jobs both in the private and government sectors. In summary, for the last six months, private education & healthcare services were the biggest employers for the US economy (as usual), followed by leisure & hospitality (travel/tourism & hotels), government & other services to some extent. Almost all other private sectors dragged the US employment under Trump 2.0, led by manufacturing, mining & logging, transportation & warehousing, wholesale & retail trade, information/techs, utilities, and professional & business services. The softening of the US employment situation is structural rather than cyclical amid Trump policy uncertainty and AI disruptions. Also, Trump's chaotic tariff policies are causing supply chain issues for the US manufacturing sector, while almost all big CAPEX is happening in the AI sector. The high cost of living (affordability) crisis is also affecting discretionary consumer spending.

As per the latest revision in the establishment survey, the change in total nonfarm payroll (NFP) employment for July was revised down by -7K to +72K, and the change for August was also revised down by -26K to -4K. With these revisions, NFP employment in the last two months combined was revised down by -33K from what was previously reported.

The BLS Household Survey

The latest BLS household (HH) survey data indicated the nominal number of the US civilian non-institutional population (>16 years of age) increased by +225K to 274226K in Sep'25, while the labor force increased by +470K to 171248K. The labor force participation rate was 62.4% vs 62.3% sequentially and against the pre-COVID average participation rate of around 63.1%; while 2006 levels were around 66.4% (pre-GFC days).

The current 2025-YTM of labor force addition was around +279K against the Non-Institutional Civilian population (working age above 16 years) growth of +545K, while the labor force participation rate at 62.4%. The labor force addition average rate was 223K in 2018 (pre-COVID).

As per the BLS Household (HH) survey, the U.S. economy has added +251K employed persons in Sep'25, against the addition of +288K sequentially (m/m) and the addition of +377K yearly (y/y). The U.S. had 163645K employed persons in Sep'25. As per the BLS household survey, the average number of additions of employed persons for 2025 (YTM) was +220K in Sep'25 against the 2024 average of +45K, 2018 average of +243K. The 3MRA of addition of US employed persons was +93K in Sep'25 vs 40K sequentially.

The US BLS HH survey includes non-farm payroll (NFP) employees (Private + Public/Govt) and self-employed persons (including professionals, contractors, and agri workers). As per Household survey data, the nominal number of unemployed persons increased by +219K to 7603K in Sep'25 against 7384K sequentially (m/m) and 6901K yearly (y/y). In Sep'25, the U.S. unemployment rate edged up to 4.4% from 4.3% sequentially (m/m), 4.1% yearly (y/y), and lower than the market expectations of 4.3%.

The 2025 (YTM) average unemployment rate was 4.2% in Sep'25 vs 4.0% in 2024. The 2019 average unemployment rate was 3.7%; the current 3M rolling average (3MRA) of the unemployment rate was 4.3%, still below the Fed's 4.5% red line. Fed's minimum unemployment may be around 3.5% on a durable basis; i.e., 96.5% employment rate, which is now around 95.6% in YTM-2025. Fed also regarded a 4.0% average as a sustainable longer-term unemployment rate; i.e., 96% employment rate as the maximum for the Goldilocks nature of the US economy, while 3.8% may be the medium-term target of Fed right now.

Self-employed persons

Further fine prints of BLS H/H survey data indicate the US NFP (Payroll) employment (Private + Public) was around 89% and the rest self-employed + agri workers around 7% historically, as maximum employment ~96%

Now, employees constitute around 89.1% of the labor force, while self-employed persons constitute around 6.7%, and the overall employment rate is around 95.8% on average in 2025 (YTM).

Overall, as per BLS seasonally adjusted data, now almost 5.4% of employed persons are multiple jobholders in 2025 (YTM) against 5.0% in 2018 (pre-COVID), equivalent to a higher unemployment rate.

FINE PRINTS OF HH SURVEY-NFP EMPLOYEES + SELF-EMPLOYED PERSONS

HH SURVEY-AGRI+PART TIME WORKERS

FINE PRINT OF H/H SURVEY

MULTIPLE JOB HOLDERS

The increasing number of multiple job holders over the years may be explained by:

1.  People may be taking additional full-time/part-time jobs (WFH) to meet the increasing cost of living (still 25% higher inflation than pre-COVID times)

2.  Fear of sudden layoffs/salary cuts during any financial crisis (like COVID, 2007 GFC, and AI disruptions

3.  The flexibility of WFH, higher productivity for both employees and employers (part-time/freelancers may do the same work more efficiently at lower pay than regular full-time employees),

4.  Sometimes, a lack of experienced workers for a specifically required skill, a flexible mix of WFH/WFO (remote/onsite) may be more positive for overall labor productivity and lower inflation.

The US BLS NFP/Establishment survey may count multiple jobs multiple times (if a person is doing two or more multiple payroll jobs at a time in WFH/remote mode or even physically in two/three shifts), while the BLS Household survey does count such multiple job holders as one employed person. The BLS Household survey includes payroll employees and self-employed persons such as professionals, gig workers/freelancers, contractors, and agricultural workers.

In the Household survey, individuals are counted only once, even if they have more than one job (based on unverified answers across 60K household samples). In the establishment survey, employees working at more than one contractual payroll job are counted separately for each payroll. Thus, often there are divergences between the number of employees and employed person additions in a month between these two BLS surveys (Establishment and Household).

Conclusions:

The higher tick in the unemployment rate in the last few months was accompanied by a higher supply of labor as a result of reverse immigration to some extent. But overall, the US NFP job data indicates a stagflation-like scenario that contributes to a broader trend of cooling hiring amid economic uncertainties, including tariffs, AI disruptions, immigration policy changes, and federal spending cuts. The 3MRA unemployment rate edged up to 4.3% from 4.2% in Sep'25, the highest level since October 2021. Household survey data showed 3MRA employment rising by +93K, but the labor force expanded by +289K, pushing the unemployment rate higher to 4.3%. Fed sees stagflation in 2026 as it projects lower economic (GDP) growth, higher inflation, and a higher unemployment rate. Overall, the present level of average core inflation should still be above 100 bps from the Fed's target with an upward risk, while the unemployment rate would be around 4.3% on average for 2025, above 0.8% higher than the aspirational target of 3.5% with an upward bias.

The US labor market remains in a state of cautious stabilization, showing signs of cooling from its post-pandemic highs but avoiding outright contraction. The most recent official data from the Bureau of Labor Statistics (BLS) covers September 2025, released on November 20, 2025, following disruptions from a federal government shutdown that began on October 1 and lasted until November 12. This shutdown prevented data collection for October 2025, so establishment survey figures (e.g., nonfarm payrolls) for October will be bundled into the next release on December 16, 2025. Household survey data (e.g., unemployment rate) for October will not be available at all. As a result, analysis relies on September's official figures, private-sector proxies, and forward-looking indicators for October and November. Overall, the market exhibits modest job growth, persistent hiring challenges for employers, elevated layoffs in select sectors, and low layoff rates broadly—pointing to a "moderately healthy" environment rather than recessionary pressures.

Layoff Surge: Challenger, Gray & Christmas tracked 153,074 announced job cuts—the worst October since 2001—concentrated in tech (part of 160,000 YTD tech layoffs) and warehousing. WARN notices hit 39,006, the highest outside major downturns (2008-2009, 2020). This indicates softening consumer/corporate spending, with laid-off workers facing longer job searches. Small Business Challenges: NFIB reported 32% of owners had unfilled openings (unchanged for two months, highest since December 2020), highlighting persistent skills mismatches. In summary, the US employment situation is softening but stable—neither booming nor breaking. Job creation is tepid, supporting the Fed's "soft landing" narrative, but sector-specific layoffs and data gaps warrant monitoring.

Bottom line:

Fed may cut in December'25 after Waller & Williams pivot along with Daly. But the US economy may face an all-out recession in 2026 rather than stagflation amid increasing subprime/prime crisis (loan defaults/delinquencies, etc), Trump's chaotic policies, and a looming AI/Crypto bubble. Thus, the Fed may also go to almost ZIRP and QE-4 (?) in 2026 (as usual)- just after 5 years of the last GFC (global financial crisis-GFC).

As of now, the only bright spot of the US job market is private education & healthcare and leisure & hospitality; both highly dependent on foreigners and healthcare/insurance policies. Trump's bellicose policies may also affect these sectors, which China is fast emerging as an affordable and quality alternative to the US for these sectors.

Technical outlook: DJ-30, NQ-100, SPX-500 and Gold

Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 46400) now has to sustain over 46700 for a further rally to 47000/47300*-48300/48500* and 49000/49500-49700/50000 in the coming days; otherwise sustaining below 46600, DJ-30 may fall to 46100/45700*-45300/4490* and 44200/44000-43500*/42150 in the coming days.

Similarly, NQ-100 Future (24300) now has to sustain over 24500 for a further rally to 24800/25000-25200/25400 and 26100-26500 in the coming days; otherwise, sustaining below 24350, NQ-100 may fall to 24200/24000*-23700/23400 23000 and 23000/22600-22400/21000 in the coming days.

Looking at the chart, technically SPX-500 (CMP: 6650) now has to sustain over 6550-6600 for a further rally to 6750/6850*-7000/7100 and 7200/7300-7500/8300 in the coming days; otherwise, sustaining below 6500, may further fall to 6490/6450-6375/6300-6250/6200 and further fall to 6080 in the coming days.

Looking at the chart, Technically Gold (CMP: $4060) has to sustain over 4085 for 4115-4155* and further 4175/4195-4300/4380 and to 4395-4405 for 4425/4455-4475/4500 to 4555-4575 and even 5000 zone in the coming days; otherwise sustaining below 4080-4075, Gold may again fall to 4040*/4020-4000/3970 and 3890/3875-3770/3740 and 3700/3600-3500/3450 and 3350 levels in the coming days.

Disclaimer: 

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