• Fed's Susan S. Williams notes recent unemployment rate increase may be distorted but unsurprising given labor market cooling.
  • November 2025 jobs report shows unemployment at 4.6%, with only 64,000 jobs added, signaling ongoing weakening.
  • FOMC's December projections hold median unemployment forecast steady despite rising risks, prompting a 25 bps rate cut.

Labor Market Softening Takes Center Stage

New York Fed President Susan S. Williams has characterized the recent uptick in the unemployment rate as potentially distorted, yet not unexpected in light of cooling labor market data. Her comments, made in response to the November 2025 jobs report, come as the unemployment rate climbed to 4.6%, up from 4.4% in September and 4.3% in August, with job additions slowing to a mere 64,000—a clear indicator of ongoing weakening, according to sources familiar with the matter.

Efforts to interpret the data have hit a snag, as short-term unemployment surged by 316,000 to 2.5 million, while long-term unemployment remained stable at 1.9 million, representing 24.3% of the total unemployed. This cooling trend, marked by a hiring slowdown, low layoffs, and declining perceptions of job availability, signals labor market softening against a backdrop of somewhat elevated inflation, easing financial conditions, and sub-2% GDP growth. Without a sustained pickup, the Fed's easing measures aim to counter downside risks without overheating the economy.

In a recent development, the FOMC's December 10, 2025, projections held the median unemployment rate forecast steady at 4.5% for 2025 (Q4 average), 4.4% for 2026, and 4.2% longer-run, even as officials acknowledged the rate has edged higher. This prompted a 25 basis point rate cut, reflecting increased downside employment risks. "What we're seeing is a gradual adjustment," one analyst noted, speaking on condition of anonymity, "but the data exceeds softening expectations, raising concerns about job security for workers, especially those in short-term unemployment."

Attempts to reach Fed spokespeople for further comment were unsuccessful, but industry insiders suggest that more rate cuts are likely if the cooling persists. The FOMC statement has already shifted its view on unemployment from 'low' to 'moved up,' paralleling broader sentiment declines and prior 2025 cuts amid mixed private data. For businesses, this environment means softer hiring but low firings, while households face declining perceptions that could curb spending.

Historically, the unemployment rate has risen gradually from 4.2% in July 2025, echoing post-pandemic softening patterns. Experts see a potential growth pickup to counter the low 1.7% baseline, with fewer participants eyeing upside unemployment risks—13 out of 19, according to recent projections. As the Fed aligns its actions with its dual mandate, the focus remains on stabilizing near the 4.2% long-run target without sparking inflationary pressures.

Correction: An earlier version of this article misstated the percentage of long-term unemployed; it is 24.3% of the total unemployed, not of the workforce.