Jobs report expected to show uptick in hiring as Fed cuts interest rates

(ABC) — A jobs report to be released on Friday will provide a key gauge of the health of the U.S. economy as the Federal Reserve slashes interest rates in an effort to revive an ailing labor market.

The fresh data comes two weeks after a blockbuster report on economic growth appeared to rebuke worries about the wider economy.

Hiring slowed sharply over the latter half of 2025, stoking concern among some economists about a possible economic slowdown. Unemployment remained low by historical standards but inched up to its highest level in years.

Economists expect hiring to have picked up but remained tepid in December, jumping to 73,000 jobs added from 64,000 in the previous month. The unemployment rate is expected to tick down from 4.6% to 4.5%.

However, the better-than-expected December report defied concerns about gross domestic product raised by the labor market.

The U.S. economy grew at a robust annualized rate of 4.3% in the third quarter in the government’s initial estimate, marking an acceleration from 3.8% growth recorded in the previous quarter, the U.S. Commerce Department said in December.

A boost in consumer spending helped propel the economic surge, the department added, suggesting that many consumers continued to open their wallets even as their attitudes worsened.

Meanwhile, inflation dropped in November, the most recent month for which data is available. The cooldown ended a monthslong acceleration of price increases and offered some relief for households strained by cost hikes.

Inflation remains well below a 2022 peak but stands nearly a percentage point above the Fed’s target of 2%.

The onset of elevated inflation alongside sluggish hiring has put the Fed in a difficult position.

The central bank must balance a dual mandate to keep inflation under control and maximize employment. To address pressure on both of its goals, the Fed primarily holds a single tool: interest rates.

Starting in September, the Fed cut interest rates at three consecutive meetings, opting to address the flagging labor market. The benchmark rate stands at a level between 3.5% and 3.75%.

That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.

Futures markets expect two quarter-point interest rate cuts this year, forecasting the first in April and a second in the fall, according to CME FedWatch Tool, a measure of market sentiment.

After the Fed’s most recent rate cut in December, Fed Chair Jerome Powell suggested the central bank may be cautious about further rate reductions.

“We’re well positioned to wait and see how the economy evolves,” Powell said.