Risks to the U.S. Labor Market Still Remain High

[Ben Graham]

While the U.S. dollar is in demand among traders who are reassessing their riskier strategies ahead of important data expected this week, Federal Reserve Vice Chair Philip Jefferson said he believes risks to the labor market are tilted to the downside. However, he reiterated his view that policymakers should proceed slowly as U.S. interest rates approach neutral levels.

"The balance of risks in the economy has shifted in recent months: downside risks to employment have increased compared with upside risks to inflation, which have likely somewhat diminished recently," Jefferson said in prepared remarks delivered Monday at the Federal Reserve Bank of Kansas City.

Jefferson's speech comes amid intensified debate over whether the Federal Reserve should continue cutting interest rates. U.S. inflation is gradually approaching the Fed's 2% target, but the economy still shows resilience, and the labor market—though it has cooled—remains strong.

Jefferson's statement about risks shifting toward weaker labor conditions indicates his concern about a potential slowdown in hiring and a rise in unemployment. This may support a more cautious approach to monetary policy to avoid stifling economic growth. At the same time, his repeated emphasis on moving slowly reflects his confidence that current policy is already affecting the economy and that further easing may be unnecessary.

Jefferson's comments also suggest he remains open to either lowering rates again or keeping them unchanged at the next policy meeting on December 9–10. As a reminder, the Fed leadership cut the key rate by a quarter percentage point last month, reflecting ongoing concerns about the labor market.

Federal Reserve Chair Jerome Powell, speaking to reporters after the decision, said that another cut in December is not predetermined. Recent hawkish remarks by other Fed officials have reduced the probability of a December rate cut to around 40%, down from nearly 100% just before the Fed's October meeting.

Although Jefferson expects the unemployment rate to rise slightly by year-end, current data indicates a gradual cooling in the labor market — on both the demand and supply sides. "As for progress toward the Fed's 2% inflation target, it appears to have stalled, which is a consequence of tariff implementation," the policymaker noted.

The U.S. dollar reacted to these remarks with a modest strengthening against risk-sensitive assets.

As for the current technical picture of EUR/USD, buyers now need to consider how to reclaim the 1.1615 level. Only this will allow them to aim for a test of 1.1640. From there, they may attempt to climb to 1.1680, though doing so without support from major players will be quite challenging. The final upward target will be the 1.1710 high. In case the pair declines, I expect any serious activity from large buyers only around the 1.1590 level. If no one appears there, it would be preferable to wait for a renewal of the 1.1565 low or to open long positions from 1.1540.

As for the current technical picture of GBP/USD, pound buyers need to reclaim the nearest resistance at 1.3180. Only this will allow them to aim for 1.3215, above which a breakout will be quite difficult. The final upward target will be the 1.3244 level. In the event of a decline in the pair, the bears will attempt to regain control over 1.3133. If they succeed, a breakout of this range will deal a serious blow to the bulls' positions and push GBP/USD toward the 1.3085 low, with the prospect of reaching 1.3050.

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