Episode summary
Weak Jobs Signal in Beige Book Sets Stage for Fed Cut
Bloomberg Surveillance
· · 8 min · Guests: Julia Coronado
Summary
Julia Coronado argued that the Fed is heading into December with a genuine policy split, but the labor side of the mandate is starting to win out. She said the market is pricing several rate cuts next year, yet the real possibilities are either a single cut if growth stabilizes, or a deeper move toward accommodative policy if the labor market is in the early stages of cracking.
She described the U.S. economy as still holding up in Q3 but softening in Q4, with consumers becoming more price sensitive and budget conscious. In her view, restrictive immigration policy is a structural drag because it limits labor supply, slows paycheck growth, and lowers trend U.S. growth into 2026 even if productivity helps. She also said inflation remains stuck closer to 3% than 2%, but it is the weakening labor market, not runaway prices, that is likely to force the Fed’s hand.
On policy, Coronado said Chair Powell and President Williams appear to be coalescing around one more insurance cut this year. She pointed to the unemployment rate rising by a tenth in each of the last four months, wage growth slowing below inflation, and consumer surveys turning gloomier as signs that the Fed will not ignore labor weakness for long.
Key takeaways
- Coronado said the Fed is likely to deliver one more December cut as an insurance move, even though committee views remain divided.
- She sees two paths for rates next year: one cut if growth stabilizes, or cuts through neutral if the labor market keeps deteriorating.
- Coronado said Q3 growth looks solid, but Q4 is turning “squishy” as consumers become more price conscious and auto sales drop.
- She argued that restrictive immigration policy is a structural reason U.S. trend growth should slow into 2026.
- Coronado said unemployment at 4.4% is already a concern and would become more serious if it moves above 4.5%.
Notable quotes
“I think either we're going to get one and done because things are stabilizing and growth is going to be okay”
“or we're really starting you know, we're in the early game churning of the labor market and the Fed's going to have to cut not just to neutral, but through to neutral to an accommodative stance”
“I think we're going to see strong Q3 subdued Q4 on average, we'll see an economy that has downshifted from last year on balance in 2025”
“we have a read on Q3 and by all indications it's very solid. But early indications are Q4 is that it's kind of squishy”
“I think once we start heading north of four and a half, and it's not just the level, the level matters”
How the episode opens
Well, Tom, I think actually the possibilities are fairly bimodal. So if you look at the market and what it's priced for, it's priced for several rate cuts next year. But I think either we're going to get one and done because things are stabilizing and growth is going to be okay.
And the story has enough legs to power the economy or we're really starting you know, we're in the early game churning of the labor market and the Fed's going to have to cut not just to neutral, but through to neutral to an accommodative stance. So it's one or the other. It feels like to me, you're so good at gaming GDP.
My head is spinning, Paul Sweeney head is spinning over nominal GDP. I got a 4% Atlantan GDP now maybe 3.8%. I got half of America flat on their back.
What is the Coronado call for 2026? Real and nominal GDP? So first, if we start with the second half of this year, we have a read on Q3 and by all indications it's very solid.
But early indications are Q4 is that it's kind of squishy. The consumer auto sales have dropped. I'm not sure what Dana told you on the holiday season, but people seem to be price sensitive, price conscious, budget conscious, not hunkered down in the corner, but not booming.
And so I think we're going to see strong Q3 subdued Q4 on average, we'll see an economy that has downshifted from last year on balance in 2025. And one of the reasons this is happening is structural. We've chosen a restrictive immigration policy that means basically no labour supply.
So no labour supply, no jobs, less growth in paychecks and income and a slower economy. And I think that that will prevail into 2026, a lower trend growth rate for the U.S.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- beige book
- fed rates
- jobs signal
- consumer spending
- labor market loosening
Companies and tickers mentioned
- MacroPolicy Perspectives
Watch the episode
Watch “Weak Jobs Signal in Beige Book Sets Stage for Fed Cut” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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