Weak non-farm data reignites recession discussions, but also opens the window for interest rate cuts

December Non-Farm Payrolls report is out, marking the market’s closing data for 2025. According to the latest news, Todd Schoenberger, Chief Investment Officer of Washington Crosscheck Management, stated that this report is full of uncertainties, and the soft labor market performance could bring recession discussions back to Wall Street’s agenda. Interestingly, the same soft data also provides a reason for the Federal Reserve to further cut interest rates, which in turn has driven the stock market higher. The underlying logic behind this warrants careful analysis.

The Dual Implications of Soft Data

The soft December non-farm data has triggered two completely different narrative lines:

Recession Concern Line: Weak labor market data are often seen as early warning signs of an economic recession. Employment is a barometer of the economy; slowing hiring and rising unemployment pressures tend to precede economic downturns. This has brought recession discussions back to the forefront on Wall Street, becoming a focal point for market attention.

Rate Cut Expectation Line: At the same time, the same soft data has become the basis for the Federal Reserve to continue cutting rates. Weak economic data suggest that inflation pressures may ease, and rising unemployment provides a reason for the Fed to lower interest rates. This creates a seemingly contradictory situation: bad news is interpreted as “good news” (for the stock market).

The Market’s True Logic

Schoenberger’s view reveals the core logic of the current market: the market’s sharp rise in response is “reasonable” because traders see the Fed’s rate cut decision as a “booster shot” that propels the market higher. This means the current upward momentum is driven by expectations of loose liquidity rather than optimism about economic fundamentals.

In other words, the market is betting that the Fed will cut rates to offset economic weakness, and the liquidity brought by rate cuts is sufficient to support asset prices. This is a classic “bad news is good news” logic—the worse the economic data, the stronger the rate cut expectations, and the more ample the liquidity.

Implications for the Crypto Market

This dynamic has two effects on crypto assets:

Short-term positive: Expectations of Fed rate cuts typically boost risk assets, including cryptocurrencies. In a liquidity-favorable environment, investors tend to seek higher returns, and crypto assets, as high-risk, high-reward investments, attract attention.

Medium-term concerns: The rekindling of recession discussions indicates genuine pressure on economic fundamentals. If a recession truly occurs, even with rate cuts, the selling pressure on risk assets could be significant. The current “good news” may only be a temporary buffer.

Summary

The soft December non-farm data marks a punctuation mark full of uncertainty for 2025. Recession fears and rate cut expectations form a “dual story”: the current market rally is more driven by expectations of loose liquidity rather than improvements in economic fundamentals. For the crypto market, this brings both short-term liquidity support and medium-term economic risks. The next key factor will be the Federal Reserve’s actual actions—whether they will continue to cut rates as market expectations suggest will directly influence how long this “good news” can last.