At the just-concluded December Federal Reserve (FOMC) meeting, the central bank cut interest rates by 25 basis points as expected, and also announced a new plan: to start buying about $40 billion in short-term Treasury bonds, which is equivalent to quietly "expanding" (increasing the size of the balance sheet).

But what really shocked the market was not the operations themselves, but what Federal Reserve Chairman Powell said after the meeting: "The official employment growth data may be seriously overestimated, and the actual situation may even be negative growth."

To put it simply, everyone has always thought that the U.S. job market is strong - this is the key to supporting the economy and supporting consumption. But if even employment is quietly deteriorating, then the "foundation" of the entire economy is not as stable as it seems.

This also explains why inflation has not yet returned to target, and the Fed is in a hurry to cut interest rates - because they see internal data that may be worse than public figures. More importantly, this statement opens the door to larger-scale easing in the future. If the labor market is really weakening, the Fed is likely to cut interest rates sooner and more than the market expects.

Employment data may be "watered"

The December Fed meeting was ostensibly calm - only cutting interest rates by 25 basis points as expected, bringing interest rates to 3.5%-3.75%. But the information that really matters is hidden in the details.

David Mericle, chief economist at Goldman Sachs, pointed out: "The most critical news today is that Powell and the Fed's internal team believe that the official monthly employment data released by the United States (i.e., 'non-farm payrolls') counts about 60,000 more jobs every month."

This error is very large - even Goldman Sachs' previous estimate of "overestimation of 30,000 to 35,000 per month" seems conservative.

Once the data is corrected, the situation changes drastically. According to official data, from May to September 2025, the United States will add an average of about 40,000 new jobs per month. But if you subtract the 60,000 "water", the real situation is actually a decrease of 20,000 people per month - that is, the job market may already be shrinking.

In the face of this possibility, Fed Chairman Powell took an unusually cautious tone at the press conference: "If job creation is already negative, we must be very careful to ensure that monetary policy does not further hurt employment." He also made it clear: "We think these employment figures are overestimated. ”

Why this rate cut?

It is such a pessimistic judgment of the labor market that has become an important reason for the Fed's third consecutive interest rate cut. Goldman Sachs believes that this is actually the "hidden main line" of this meeting - on the surface, it is a routine operation, but in fact it reflects the Fed's deep concern about economic fundamentals.

People think that employment in the United States is still growing, but the reality may have turned negative. The Fed did not dare to wait any longer and could only cut interest rates in advance to "save the day".

Why is the U.S. employment data "inflated"?

The problem lies in the statistical method. The "non-farm payrolls data" released by the Bureau of Labor Statistics (BLS) every month does not actually track every new or closed small company in real time. To fill this gap, they used an estimation tool called the "birth-death model" - simply put, it uses historical laws to "guess" how many new companies have created jobs and how many old companies have laid off people.

When the economy is stable, this "guessing" is relatively accurate, but once the economy begins to weaken, this model will be "slow to react" and still calculate according to the good days of the past, and the result is systematically overcounting jobs.

Fed Chairman Powell called this deviation "systematic overvaluation." He admitted at the press conference: "The labor market is not only cooling, but cooling much faster than we originally thought."

This kind of "inflated" data is actually an "illusion" caused by the lag of statistical models.

This is not the first time that things have gone wrong. In September this year, the Bureau of Labor Statistics preliminarily revised the data: in the year ending March 2025, the number of people employed in the United States was overestimated by more than 910,000! The final official amendment results are expected to be announced in February 2026.

|The Fed's focus is shifting to "job protection."

On the surface, the Fed has released a lot of "hawkish" signals this time: the policy statement has changed its wording, implying that it will be more cautious in future interest rate cuts; Internal opinions are seriously divided: the dot plot shows that two voting members are clearly opposed to the rate cut, and six members are not directly opposed, but they also tend to "don't lower it yet". This disagreement is the most pronounced in recent years.

It stands to reason that this should have made the market worry about "raising interest rates or pausing easing", but the stock market rose instead. Why? Because Powell said more crucial things at the press conference.

Not only did he acknowledge that current employment data may be overestimated, but he even suggested that real employment may be declining. At the same time, he remains confident that inflation will fall.

The market immediately understood: even if inflation has not yet returned to the 2% target, as long as employment begins to deteriorate, the Fed will prioritize "saving jobs".

Economist: There may be another rate cut in January!

Christopher Hodge, an economist at Natixis, a subsidiary of Société Générale, said that the Fed is now most concerned about the unemployment rate. He predicted: "In the first quarter of 2026, the unemployment rate is likely to continue to rise. To prevent further deterioration in the job market, the Fed is likely to continue cutting interest rates. ”

He believes that as long as labor demand is weakening and unemployment is increasing, even if hawkish officials oppose it, interest rate cuts are almost certain. "There is a high possibility of another rate cut in January. He said bluntly.

What does the market think?

The stock market rebound in the last two days shows that investors feel that the Fed is less "hawkish" (i.e., not so hawkish).

The futures market reacted more directly: according to CME's FedWatch tool, although most traders expect the next rate cut to wait until April, they generally believe that at least two rate cuts will be made in 2026 - more aggressive than the Fed officials themselves predicted that "only one cut"; There is even a 41% chance that it will drop three times!

Embrace "easy trading", but be wary of repeated data

 Stock market: Growth stocks benefit, but don't chase higher

interest rate cuts are expected to benefit long-term growth sectors such as technology, AI, and biotechnology; However, it should be noted that if the BLS officially revises the employment data in February 2026 (which is expected to be revised sharply downward), it may cause short-term volatility.

Bond market: There is still room for long-term interest rates to fall

The 10-year U.S. Treasury yield may test 3.8%-4.0% support; 30-year treasury bonds can be allocated at high prices, and the game economy slows down + policy easing.

Major asset classes: gold, US dollar, RMB assets

Gold: Falling real interest rates + hedging demand, still with allocation value in the medium and long term; US dollar: short-term or volatile weak, but if global risk aversion heats up, there is still support; A-shares/Hong Kong stocks: If the Fed turns clear, the probability of foreign capital returning to emerging markets will increase, and pay attention to high dividends + technology leaders.