Some Cold Water on the December Cut Fever

Fed Chair Powell downplays a December rate cut, calling it “far from” a foregone conclusion despite market expectations. When will the next rate cut come?

Monetary Policy
Central Banks
Markets & Economy
Federal Reserve

Key Points

What it is

The Fed signals doubt on a December rate cut, countering market expectations.

Why it matters

Conflicting inflation and employment risks create interest rate uncertainty.

Where it's going

Expect slower rate cuts, but further easing is likely in 2026.

The market had been pricing in, with roughly a 90% probability, another rate cut by the (or FOMC) at its next meeting, in December. The FOMC did deliver on a highly anticipated 25-basis-point cut in October, but Fed Chair Jay Powell went out of his way to downplay the likelihood a another cut in December. Without ruling it out, he remarked several times during his October press briefing that another rate cut in December is “not a foregone conclusion.” In fact, he said a December cut is “far from” a foregone conclusion. Let’s take a closer look.

The post-meeting policy statement and Powell’s remarks continued to highlight that “downside risks to employment rose in recent months,” and that “inflation has moved up since earlier in the year.” Powell noted that, with “risks to inflation tilted to the upside and risks to employment to the downside,” the Committee faces “a challenging situation.” He added that there is “no risk-free path for policy” as the Committee navigates this tension between its employment and inflation goals.

Powell noted several times that there were “strongly differing views” among policymakers about how to proceed at the December meeting. He suggested that the ongoing tension between the Committee’s policy goals, different policymaker forecasts, and different risk tolerance among policymakers, account for this strong divergence of views. He also noted that some policymakers currently prefer to pause in December and reassess the balance of risks then.

We have long expected that the FOMC would eventually slow its pace of rate cuts, from cutting at three consecutive meetings starting in September, to skipping a meeting or two, starting in early 2026. Powell’s remarks at his October press conference increase the risk that such slowing could come a littler earlier, in December. That said, we continue to see the case for further rate cuts next year as intact. Powell, himself, volunteered that he still sees the FOMC’s policy stance as “modestly restrictive,” and suggested that further easing will be needed to bring about a neutral policy stance.

Main Point

Fed Split Reveals Uncertainty on Rate Path

Diverging Fed views highlight deep uncertainty. Some urge a December pause to weigh risks, while others see more cuts ahead — underscoring policy tension.

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Antulio N. Bomfim

Head of Global Macro – Global Fixed Income

Antulio Bomfim, head of global macro for the global fixed income team, oversees interest rate strategy, systematic volatility, liquidity and monitoring of systemic risk globally. He is also responsible for the firm’s global liquidity management business.

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