Yesterday, data from payroll platform ADP reported U.S. businesses had shed an average of 11,250 jobs a week for the four weeks ending October 25, “suggesting that the labor market struggled to produce jobs consistently during the second half of the month.” While economists have noted that private data like this is receiving unwarranted attention due to a lack of Bureau of Labor Statistics reporting, nevertheless, it “added to fears that the labor market hadn’t held up into the shutdown,” Deutsche Bank’s Jim Reid wrote to clients on Wednesday.

So far, investors haven’t panicked about unemployment—likely waiting on official government data before reassessing their outlook for the U.S. economy. Positive sentiment remains in markets thanks to hints that Washington’s government shutdown will soon come to an end.

The Dow Jones closed over 1% higher in trading yesterday, with the S&P 500 trading relatively flat. The VIX volatility index also continued to fall, down 2.5%, suggesting analysts believe markets should avoid turbulence in the near-term. Europe also posted modest gains in the early hours of trading: Germany’s DAX was up a little over 1%, France’s CAC 40 up 0.7% and Spain’s IBEX 35 up a little over 1%.

In Asia, the Shanghai Stock Exchange was flat while the Nikkei 225 and Hang Seng Index posted marginal gains.

Weaker labor market data should, in theory, build the case for the Fed to deliver its highly anticipated base rate cut next month as it would foster economic activity. However, CME’s FedWatch tracker shows a fall in expectations that the FOMC will cut rates at its final meeting of the year. Yesterday, investors were pricing in a 67% likelihood of a 25bps cut next month to between 3.5% and 3.75%. At the time of writing, these odds have dropped to a little over 63%.

The contrast in expectations is even starker when compared to a month ago, when markets were pricing in a 92% chance of a cut. By contrast, expectations for a hold have tipped steadily higher, to 36.6% at the time of writing.

Likewise, CME’s volume tracker for 30-day Fed funds futures is down over the past fornight, potentially indicating investors are adopting Powell’s ‘wait and see approach’ before making any calls.

The market’s caution toward a further cut comes, in part, from the sticky nature of inflation at 3%—stubbornly ahead of the Fed’s 2% target—causing tension as the Fed pursues its dual mandate of maintaining full employment and stabilizing price rises. Indeed, with a degree of uncertainty still in the market stemming from tariffs, immigration policy and consumer confidence, some FOMC members have struck a hawkish tone on the policy path moving forward.

All-important consensus

It’s likely Jerome Powell, tasked with achieving as great a consensus as possible among the committee, will have his work cut out at the next meeting.

Recent Trump appointee Stephen Miran has so far advocated for a larger cut to the base rate of 0.50bps—in line with the argument from the White House. It’s a theme he reiterated in a speech in New York on Friday, outlining in a discussion about stablecoins that “even relatively conservative estimates of stablecoin growth imply an increase in the net supply of loanable funds in the economy that pushes down” the economy’s neutral rate.

Dissent has previously come from other individuals though, namely from Governors Christopher Waller and Michelle Bowman, who disagreed with the consensus to hold rates earlier this summer. Speculators questioned whether this dissent was merely showboating to catch the attention of the president in his search for Powell’s replacement.

But the tone from many members has turned hawkish since the last meeting. “It is very important that we tread with caution, because I believe there’s limited room for further reductions without monetary policy becoming overly accommodative,” St Louis Fed President Alberto Musalem told Bloomberg on Monday.

Likewise Chicago Fed President Austan Goolsbee, often seen as a more dovish member of the committee, also struck a cautious tone in an interview with CNBC last week: “If there are problems developing on the inflation side, it’s going to be a fair amount bit of time before we see that, where if it starts to deteriorate on the job market side, we’re going to see that pretty much right away,” he explained. “So that makes me even more uneasy … with front-loading rate cuts and counting on the inflation that we have seen in the last three months to just be transitory and assume that they’re going to go away.”

Elsewhere, New York Fed’s John Williams told the Financial Times in an interview released Sunday that the Fed faces a “balancing act”: “These facts are fundamentally true — inflation is high, and it’s not showing signs of coming down right now. And at the same time, the economy is showing some resilience.” He also added that while the labor market is cooling it is not “shifting more dramatically” and chimed: “No one’s really talking about recession.”

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

• S&P 500 futures are up 0.55%. 
• STOXX Europe 600 was up 0.65% in early trading.
• The U.K.’s FTSE 100 was up flat.
• Japan’s Nikkei 225 was up 0.43%.
• China’s CSI 300 was down 0.13%.
• India’s NIFTY 50 is up 0.7%.
• Bitcoin is slightly up, sitting at $105k.