Key Takeaways

  • The National Association for Business Economics (NABE) said on Monday that U.S. job growth is slowing and the unemployment rate is expected to rise to 4.5% next year. Average monthly job gains in the current quarter are 23,000, down from 55,000 in the second quarter.
  • "Labor market expectations have softened compared to the October 2025 survey," Yalena Maleyev, a senior economist at KPMG and chair of the NABE survey, said in a statement. She noted that "the dispersion of job growth forecasts is unusually large, highlighting the high degree of uncertainty in labor demand."
  • Meanwhile, NABE said inflation will cool slightly but will remain well above the Federal Reserve's 2% target next year. According to the median estimate from a survey of 42 forecasters, the personal consumption expenditures (PCE) price index, excluding volatile food and energy prices, could rise 2.6% next year.

Deeper Analysis

Despite forecasts of a higher unemployment rate and inflation that remains above target but stable, most forecasters expect the Federal Reserve to cut the federal funds rate by 25 basis points to a range of 3.5% to 3.75% at its December 9-10 policy meeting. NABE said they expect a total reduction of 0.5 percentage points in the main interest rate next year.

Federal Reserve policymakers are divided over the best path for interest rates: one camp calls for lowering the federal funds rate to shore up the weakening labor market, while another warns that further easing will stoke inflation.

According to minutes released last Wednesday, at last month's Federal Reserve policy meeting, participants "expressed strongly divergent views on the most likely appropriate policy decision at the December committee meeting."

Despite the divergence, most Fed officials said they are waiting for more data before making a decision.

"I still believe there is room for further adjustments to the federal funds rate target range in the near term to bring policy stance closer to a neutral range, thereby maintaining the balance between our two goals," New York Fed President John Williams said in a speech last Friday, referring to the Fed's dual mandate of ensuring maximum employment and price stability.

However, Williams also said that his "policy views will, as always, be based on the evolution of the overall data, the economic outlook, and the balance of risks to achieving maximum employment and price stability goals."

NABE said economists, in their median forecast, raised their average expectation for real GDP growth next year to 1.8% from 1.7% in October.

64% of forecasters believe that the highest U.S. import tariffs since the 1930s will reduce real GDP growth by 0.5 percentage points next year. 33% of forecasters expect tariffs to slow growth by more than 0.5 percentage points, NABE said.

According to NABE, about two-thirds of economists expect import tariffs to raise overall PCE inflation by 0.25 to 0.749 percentage points.

"None of the surveyed panelists chose the option that tariffs actually have a downward effect on inflation," Yelena Shulyatyeva, senior U.S. economist at the Conference Board, said during a NABE webinar on Monday.

NABE said nearly a third of respondents (30%) believe "tariff-related risks are the most significant downside factor facing the economy, followed by 18% who cite persistently high inflation."