Economic Monitor – Weekly Commentary
by Eugenio Alemán

Did employment numbers change the equation for the Fed?

January 01, 2026

Chief Economist Eugenio J. Alemán discusses current economic conditions.

Since this is our first Weekly Economics of this new year, we felt it was important to mention what transpired during the last Federal Open Market Committee (FOMC) meeting of 2025, according to the FOMC minutes. This week’s release of the FOMC meeting minutes showed relatively strong diverging views on current monetary policy as well as on the path for policy this year. Although we already know those who were in favor, those who were against, and those who wanted even a larger cut, it seems that many of those FOMC members who supported the December rate cut were indifferent between a cut or no cut in rates, which could become an issue for those expecting another cut early this year.

The minutes indicated that “Against this backdrop1, most participants supported lowering the target range for the federal funds rate at this meeting, while some preferred to keep the target range unchanged. A few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unchanged.” This is in line with our own assessment in our December 12, 2025, Weekly Economics when we argued that “We favored a rate cut at this time. However, we realize that a very good case could have been made, from a monetary policy as well as an economic point of view, for no cuts or even higher rates, although the latter alternative had a very, very, high bar, as the Chairman of the Fed seems to have alluded to during the press conference after the FOMC decision. In fact, we believe that Fed officials finally decided to go ahead with a rate cut as a way to buy time to get a better reading on economic activity after the delay in data releases due to the government shutdown. However, it is clear that there was an important lack of conviction that a rate cut was really needed at this time, which is why two dissenters opted for no cut in rates during the meeting.”

We added that “For the majority of FOMC members, they were probably indifferent between cutting by 25 basis points or keeping rates steady, as long as markets kept upward pressure on longer term rates, as it has been the case since September of 2024, when the cycle started. Meanwhile, those preferring to keep rates unchanged were probably more concerned with inflation expectations being affected by the political pressure coming from the Trump administration to lower rates more forcefully.”  

Although there was no mention of the administration’s efforts to influence the Fed to push interest rates much lower and much faster, “… several participants pointed to the risk of higher inflation becoming entrenched and suggested that lowering the policy rate further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2 percent inflation objective.” That is, many FOMC members were clearly concerned about not bringing down inflation to the 2% target faster and that this could be construed as not being committed to the inflation target, which could help de-anchor inflation expectations.

Looking ahead, the minutes suggested a more cautious stance than what markets currently imply, noting that “With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting.”

This is also in line with our view. Given stronger economic growth driven by AI investments and expansive fiscal policy, while maintaining still relatively high inflation readings, it is highly unlikely that Fed members are going to be more aggressive with rate cuts. The only thing that could radically change their view on rates would be heightened risks of labor market deterioration and/or higher risks of recession, which is not the Fed members’ base case, nor is it ours.

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Consumer Price Index is a measure of inflation compiled by the US Bureau of Labor Statistics. Currencies investing is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

Consumer Sentiment is a consumer confidence index published monthly by the University of Michigan. The index is normalized to have a value of 100 in the first quarter of 1966. Each month at least 500 telephone interviews are conducted of a contiguous United States sample.

Personal Consumption Expenditures Price Index (PCE): The PCE is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. The change in the PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior.

The Consumer Confidence Index (CCI) is a survey, administered by The Conference Board, that measures how optimistic or pessimistic consumers are regarding their expected financial situation. A value above 100 signals a boost in the consumers’ confidence towards the future economic situation, as a consequence of which they are less prone to save, and more inclined to consume. The opposite applies to values under 100.

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GDP Price Index: A measure of inflation in the prices of goods and services produced in the United States. The gross domestic product price index includes the prices of U.S. goods and services exported to other countries. The prices that Americans pay for imports aren't part of this index.

Employment cost Index: The Employment Cost Index (ECI) measures the change in the hourly labor cost to employers over time. The ECI uses a fixed “basket” of labor to produce a pure cost change, free from the effects of workers moving between occupations and industries and includes both the cost of wages and salaries and the cost of benefits.

US Dollar Index: The US Dollar Index is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. The Index goes up when the U.S. dollar gains "strength" when compared to other currencies.

The FHFA HPI is a broad measure of the movement of single-family house prices. The FHFA HPI is a weighted, repeat- sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties.

Import Price Index: The import price index measure price changes in goods or services purchased from abroad by U.S. residents (imports) and sold to foreign buyers (exports). The indexes are updated once a month by the Bureau of Labor Statistics (BLS) International Price Program (IPP).

ISM Services PMI Index: The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers' Index (PMI) (also known as the ISM Services PMI) report on Business, a composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector.

The ISM Manufacturing Index: The GDP Now Institute of Supply Management (ISM) Manufacturing Measures the health of the manufacturing sector by surveying purchasing managers at manufacturing firms. The survey asks about current business conditions and expectations for the future, including new orders, inventories, employment, and deliveries.

Consumer Price Index (CPI) A consumer price index is a price index, the price of a weighted average market basket of consumer goods and services purchased by households.

Producer Price Index: A producer price index (PPI) is a price index that measures the average changes in prices received by domestic producers for their output.

Industrial production: Industrial production is a measure of output of the industrial sector of the economy. The industrial sector includes manufacturing, mining, and utilities. Although these sectors contribute only a small portion of gross domestic product, they are highly sensitive to interest rates and consumer demand.

The NAHB/Wells Fargo Housing Opportunity Index (HOI) for a given area is defined as the share of homes sold in that area that would have been affordable to a family earning the local median income, based on standard mortgage underwriting criteria.

Conference Board Coincident Economic Index: The Composite Index of Coincident Indicators is an index published by the Conference Board that provides a broad-based measurement of current economic conditions, helping economists, investors, and public policymakers to determine which phase of the business cycle the economy is currently experiencing.

Conference Board Lagging Economic Index: The Composite Index of Lagging Indicators is an index published monthly by the Conference Board, used to confirm and assess the direction of the economy's movements over recent months.

New Export Index: The PMI New export orders index allows us to track international demand for a country's goods and services on a timely, monthly, basis.

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Source: FactSet, data as of 10/17/2025