December 2025 Economic Review: Cooling Labor Market, Rate Cuts, and Global Risks

In December 2025, the U.S. economy navigated a complex landscape defined by cooling labor demand and shifting monetary policy. On December 10, the Federal Reserve implemented its third consecutive interest rate cut of the year, lowering the benchmark rate by 25 basis points to support a labor market showing signs of notable softening. Delayed mid-December data revealed the unemployment rate had risen to 4.6%, marking a four-year high. Economic reporting was further complicated by lingering effects from the fall government shutdown, which created data gaps that made the Fed’s decision-making more challenging. While job growth in sectors such as healthcare remained resilient, the broader labor market faced stagnant hiring, substantial reductions in the federal workforce, and accelerated displacement of professional roles due to rapid AI integration.

Consumer activity during the holiday season remained robust, with spending showing resilience despite declining consumer sentiment. Early estimates indicate that holiday retail sales grew roughly 4%, surpassing $1 trillion for the first time. However, this growth was concentrated among wealthier households, while middle- and lower-income shoppers relied heavily on credit cards to cover essentials such as rent and groceries.

As 2025 closed, economists characterized the expansion as fragile. Interest rate cuts and anticipated 2026 tax incentives provide some optimism, but the outlook remains clouded by trade tariffs, energy price volatility, and labor constraints. These domestic challenges, combined with midterm election pressures, suggest a 2026 forecast that is cautiously optimistic yet highly unpredictable.

On the geopolitical front, uncertainty persists, with major conflicts in Ukraine, Gaza, and Sudan continuing to generate significant global ripple effects. Oil prices remained steady at $58 per barrel.