Making sense of the forces driving global markets

By Jamie McGeever, Reuters Open Interest Markets Columnist 

Wall Street's big three indices were little changed on Thursday, while the dollar and Treasury yields rose, after a surprisingly strong U.S. labor market indicator called into question how much lower the Fed will cut interest rates next year. 

More on that below. In my column today I look at the U.S. consumer. By some measures, delinquency rates are worryingly high as the affordability crisis bites. But other measures show they are low, leveling off, or even falling. Maybe the glass is half full, not half empty.

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China's yuan has been on a tear lately, powering to 14-month highs against the dollar and bringing the 7.00/$ level into view. But its impressive rally shouldn't be confused with a willingness in Beijing to let it go unchecked.

On Thursday the PBOC's daily fix was 179 pips weaker than a Reuters estimate - the largest weak side deviation since the data was available in November 2022. And as Reuters exclusively reported, state-owned banks have been buying dollars but using a different intervention strategy. Beijing is still in the driver's seat.

The number of Americans filing new applications for unemployment benefits fell last week to 191,000, its lowest since September 2022. In contrast to the surprise fall in ADP private sector jobs reported earlier this week, this suggests the labor market is holding up just fine.

This is historic. As economist Phil Suttle notes, it is only the 9th time since 1970 that initial weekly claims have fallen below 200k. And 191k today is a much smaller share of the labor force than it was in the past. Does this look like a labor market in need of more rate cuts? 

Barring an extraordinary upside surprise in the September PCE inflation data on Friday, the Fed will almost certainly cut interest rates again next week. But the division of opinion, and number of dissenting votes, will garner more market attention than the decision itself.

There hasn't been a unanimous FOMC vote since June, and there have been more dissents in 2025 than any year since 1993. The FOMC has not had three or more dissents at a meeting since 2019, and that has happened just nine times since 1990. A 7-5 split next week would make upcoming meetings very interesting, especially with more hawkish regional Fed presidents becoming voters in 2026.

Years of high borrowing costs and sticky inflation have spawned an affordability crisis in the United States, but some consumer delinquency figures suggest the economic picture might not be so grim. 

Today there is much talk of the so-called "K-shaped" economy: the rich are thriving while the rest are barely surviving. Proponents of this narrative often point to the millions of consumers struggling to service their debts, be they credit card, auto, student, or other loans. 

If the labor market continues to weaken, they argue, incomes will be squeezed, delinquencies will accelerate, and economic growth will slow. In a worst-case scenario the economy could tip into outright recession. 

With the unemployment rate the highest in four years and rising, this is a compelling argument, especially now that the slowdown in hiring is threatening to flip into outright firing.

And it's true that, by some measures, consumer delinquency rates are "elevated", as the New York Fed notes. But by others, they are either low, or are leveling off from the steady rise that followed the pandemic. 

"Household leverage and debt servicing costs remain low by historical standards, and credit card delinquency rates continued to level off through 2025 Q3," Goldman Sachs economist Joseph Briggs wrote on Monday. 

Indeed, at the aggregate level, household debt service payments as a percentage of disposable personal income have steadied in recent quarters at just over 11%. That is lower than the level just before the Covid-19 recession, and, more significantly, is also below levels that immediately preceded the three prior recessions going all the way back to 1990.

Combine this with the likelihood of falling interest rates and fiscal stimulus in the coming year, and the outlook for the U.S. consumer - and, by extension, the economy - may be brighter than feared, even at the lower end of the income scale.