The September report on the number of jobs outside the agricultural sector — the first to be released after the government crisis froze federal statistics for several weeks — showed the strength of the headlines but the weakness of the underlying indicators, reinforcing the view that the Federal Reserve may have limited room for further policy easing.

The economy added 119,000 jobs in September, more than double economists' expectations of 50,000. However, the unemployment rate rose to 4.4% from 4.3%, reaching its highest level since October 2021.

Conflicting signals forced the markets to be cautious, and traders maintain a low probability of a December decline. These chances rose slightly on Friday after New York Federal Reserve President John Williams indicated that he might support a rate cut at the next meeting.

Williams said he still sees “an opportunity for further adjustments in the near term” to bring policy closer to neutral. His comments added some softness to market expectations, but did not significantly change forecasts for the full rate path.

There will be no more declines under Powell, says BofA

Shruti Mishra, an economist at Bank of America, believes that the overall labor market situation is a key determining factor. The bank claims that most of the weakening of the labor market this year was caused by disruptions in both supply and demand. Employment growth slowed in the summer and the unemployment rate rose slightly, but Mishra stresses that the unemployment rate remains historically low.

In its latest analysis, the bank notes a sharp decline in the supply of labor in the future, caused by a much tougher immigration policy. Mishra estimates that net immigration will fall to about 380,000 over the next year — well below the average of 2.1 million in 2020-2023. This shortfall amounts to a labor supply shock of about 90,000 workers per month compared to recent norms.

With fewer workers entering the labor market, Mishra expects the break—even rate of job growth — the level needed to keep unemployment stable - to fall to about 20,000 per month. This dynamic, according to Mishra, will keep the unemployment rate relatively stable, even with a slowdown in employment growth.

BofA predicts only a moderate increase in unemployment, which will peak at about 4.5% early next year, and claims that the labor market will remain close to full employment.

As a result, the bank sees “limited opportunities for the Fed to cut rates further,” adding that steady inflation supports its view that “there will be no more rate cuts under Chairman Powell.”