The Fed Cuts Rates and Keeps the Door Open For More in 2026

Job Openings Surprise but Layoffs Surge

A new JOLTS report showed U.S. job openings rising slightly in October after a sharp jump in September, which at first glance could suggest the labor market is holding up better than feared. Openings increased to about 7.7 million, while hiring slowed and fewer workers voluntarily quit their jobs — a signal that employees are becoming more cautious and less confident about switching roles.

That said, this report is already somewhat stale. The data reflects conditions before the Fed’s latest policy meeting and Powell’s more dovish remarks, where he openly acknowledged that labor market weakness may be understated in official reports. Since this data was collected, layoffs have continued to creep higher and hiring has softened further, making the labor market look less resilient than these backward-looking numbers imply.

In other words, while job openings haven’t collapsed, the trend beneath the surface — slower hiring, fewer quits, and rising layoffs — reinforces why the Fed is increasingly focused on downside labor risk rather than upside inflation pressure.

Fed Meeting; Quantitative Easing is Back!

Following the cut announcement, Powell said during his press conference that the Fed is already in the “upper bound of neutral,” which is Fed-speak for: we can’t cut much more unless inflation drops or the labor market softens further, which is much more dovish than what the market expected him to do. He then proceeded to hint that the labor market is in worse shape than the official numbers show — even suggesting the BLS may be overstating job growth by roughly 60,000 jobs per month. If he’s right, this week’s employment data could show friendlier numbers for rates.

On inflation, Powell made it clear that services inflation is improving, and the only real pressure left is in tariff-affected goods categories. Without tariffs, he thinks inflation is already in the low 2s — very close to target. Tariff impacts, he said, should peak in Q1 of next year.

The surprising twist: the Fed will start buying $40 billion per month in T-bills. That's right, quantitative easing is officially back! Which means we could see treasury rates (and therefore mortgage rates) drop as the Fed buys up bills. While this won’t directly pull long-term rates lower, it will force Treasury to issue more short-term debt and less long-term debt — a shift that could tighten supply in the long end and support lower mortgage rates.

As for the way the voting at the meeting came out., 3 Fed officials dissented, all wanting a larger 50bp cut. And going into 2026, the voting rotation gets noticeably more dovish as several hawkish regional presidents rotate off and are replaced by members who are more open to easing. Combine that with a new Fed Chair arriving next year, and the committee could lean meaningfully toward more cuts in 2026 after Powell leaves in May.

The Fed’s dot plot is all over the place — everything from rate hikes to 150bp of more cuts — but the median expectation for 2026 is 1 cut. I'm optimistic and expect that we'll see 2-3 as a Trump friendly Federal reserve takes over.

Bottom line: Powell is warming the market up for more rate cuts, the labor market may be weaker than reported, and the composition of next year’s Fed becomes substantially more dovish. All of which points to a more rate-friendly path ahead.

What to expect this week?

This week is all about labor market and inflation data, with several reports that could reshape how policymakers — and markets — view economic momentum heading into year-end.

The delayed U.S. employment report arrives Tuesday, alongside the unemployment rate and wage data. Given recent questions around job growth accuracy and a steady rise in layoffs, this release will be closely watched for confirmation that the labor market is continuing to cool beneath the surface.

On the inflation side, Thursday brings CPI and Core CPI, which will help clarify whether recent disinflation trends are holding or if pricing pressures are proving stickier than expected. With services inflation still in focus, even small surprises could influence expectations around the path of the economy.

Between labor data early in the week and inflation data later on, markets should have a much clearer picture of where growth and pricing pressures actually stand right now — not where they were earlier this fall.