As of December 1, 2025, financial markets are betting heavily that the Federal Reserve will cut interest rates again at its December 9–10 meeting — even as the central bank itself looks more fractured than it has in years.
Futures tracked by the CME FedWatch tool now imply roughly an 80–90% chance of a 25-basis-point cut, according to multiple analyses and bank research notes. [1] Major Wall Street firms that only weeks ago were on the fence have swung behind a December move, led most recently by JPMorgan and Bank of America. [2]
Yet minutes from the Fed’s October meeting, fresh commentary from policymakers, and new reporting suggest unusually sharp internal disagreements that could produce a rare cluster of dissents — and a potentially messy message — when the decision finally lands. [3]
How We Got Here: From “Not a Foregone Conclusion” to Near-Certainty
The Fed already cut rates by 25 basis points at its October 28–29 meeting, taking the federal funds target to 3.75–4.00% and halting its balance-sheet runoff for Treasuries. [4] At that point, Chair Jerome Powell went out of his way to stress that another cut in December was “not a foregone conclusion,” signaling a desire to proceed cautiously amid a government data blackout caused by a prolonged shutdown. [5]
The October minutes, released on November 19, revealed just how divided the Federal Open Market Committee (FOMC) already was. Many participants argued against another cut this year, worried that inflation — which has sat above the Fed’s 2% target for more than four years — could become entrenched if the central bank eased too aggressively. Others feared that keeping policy too tight would deepen damage in a labor market that has clearly cooled. [6]
At that time, the minutes indicated traders had trimmed the odds of a December cut to around one in four, reflecting the Fed’s internal caution and the lack of fresh official data on jobs and inflation. [7]
Since then, the narrative has turned sharply:
- Government shutdown fallout: The shutdown delayed key releases like the September and October jobs reports, forcing policymakers to rely more heavily on private indicators, anecdotes and Fed surveys. [8]
- More signs of labor softening: Beige Book anecdotes and private data have pointed to slower hiring, more talk of layoffs and weaker discretionary spending. [9]
- A wave of dovish Fed-speak: Several influential officials have openly argued that the risks around employment now outweigh the risk of an inflation flare-up — even with inflation still above 2%. [10]
The result: within the space of roughly two weeks, market odds for a December move have swung from “maybe” to “almost assumed,” setting the stage for a high-stakes, potentially contentious meeting.
Wall Street’s Flip: JPMorgan and BofA Join the December-Cut Camp
JPMorgan’s U-Turn
On November 21, after a stronger-than-expected September payrolls report, a Reuters survey of global brokerages found firms split on December: JPMorgan, Standard Chartered and Morgan Stanley had just scrapped their forecasts for a December cut, seeing better job growth as a reason to hold. [11]
That changed quickly.
On November 27, Reuters reported that JPMorgan now expects a 25-basis-point cut at the December meeting, reversing its earlier call for the first cut to come in January. [12] The bank’s economists pointed to recent comments from key Fed officials — notably New York Fed President and FOMC Vice Chair John Williams — that signaled greater openness to easing “in the near term” and suggested the September jobs report may already have “sealed” the case for a December move. [13]
JPMorgan still expects another cut in January, framing December as part of a short, late-cycle easing sequence rather than the start of an aggressive cutting campaign. [14]
Bank of America’s December 1 Call
Today, Bank of America Global Research made its own pivot. In a note cited by Reuters, BofA said it now forecasts a 25-basis-point rate cut at the December meeting, after previously expecting the Fed to hold steady. [15]
Key points from BofA’s new outlook: [16]
- It sees weak labor market conditions and recent dovish remarks from senior officials, including John Williams, as sufficient to justify a cut next week.
- BofA now projects two additional quarter-point cuts in June and July 2026, implying a terminal funds rate between 3.00% and 3.25%.
- The firm links its expectation of more easing next year partly to prospective leadership changes at the Fed, with reports that White House economic adviser Kevin Hassett is a leading candidate to succeed Powell when his term ends in 2026.
- Analysts warn that cutting in December would risk pushing policy into genuinely accommodative territory just as new fiscal stimulus begins, but still judge that the Fed is likely to move.
According to the same report, Fed funds futures now price about an 87–88% chance of a December cut, with only a small probability attached to a hold. Morgan Stanley and Standard Chartered remain among the few big houses still expecting no change. [17]
Economists’ Forecasts: Weak Jobs vs. Stubborn Inflation
A mid-November Reuters poll of 105 economists found about 80% expect the Fed to cut again in December, delivering a third straight 25-basis-point reduction and lowering the target band to 3.50–3.75%. [18]
Their reasoning:
- Labor market: Economists see a “cooling, not collapsing” job market, with slower hiring, more talk of layoffs and a gradual creep higher in the unemployment rate — now around a four-year high near 4.4%. [19]
- Growth slowdown: Consensus forecasts show GDP decelerating toward roughly 1% this quarter after stronger mid-year growth. [20]
- Inflation tension: The Fed’s preferred PCE inflation gauge has stayed above 2% for more than four years and is expected to average above target well into 2027, raising concerns about the central bank’s credibility if it eases too rapidly. [21]
Recent qualitative evidence backs up the softer-growth side of that trade-off. The Fed’s November Beige Book cites flat or declining employment in several districts, a drop in temporary staffing, and more companies hiring only to replace departures rather than to expand. Consumer spending looks softer, especially in lower- and middle-income households, though high-end retail remains more resilient. [22]
That backdrop underpins comments from several key officials:
- Christopher Waller says the job market is now “soft” and continuing to weaken, making a December cut appropriate, though he is less certain about January until a “flood of delayed data” arrives. [23]
- In earlier remarks, Waller noted that corporate executives have moved from a “no-hire, no-fire” posture to active planning for layoffs, reinforcing his view that job-market risks have grown. [24]
- Lisa Cook describes December as a “live” meeting, arguing risks to both sides of the Fed’s dual mandate are elevated and stressing that she will rely on a wide range of data and surveys to compensate for missing government reports. [25]
- Mary Daly of the San Francisco Fed, typically aligned closely with Powell, has publicly backed a cut next week, warning that the labor market is in a fragile “low-hiring, low-firing” equilibrium that could deteriorate suddenly if layoffs pick up. [26]
Taken together, the economic and anecdotal data lean toward easing — but not overwhelmingly so, given inflation’s persistence and the Fed’s bruised credibility after years of above-target prices.
Inside the Fed: Rare Divisions and the Risk of Multiple Dissents
Behind the scenes, the December meeting is shaping up as one of the most contentious of Powell’s tenure.
The October minutes outlined three roughly similar-sized camps regarding December:
- Several officials saw a December cut as likely appropriate.
- Another group thought lower rates would eventually be needed, but not necessarily as soon as December.
- “Many participants” had already ruled out a December cut, worried that further easing would send the wrong signal about the Fed’s commitment to its 2% inflation goal. [27]
A separate Reuters analysis today warns of a potential “flurry of dissents” in coming meetings, reflecting entrenched positions that hardened during the long shutdown-induced data blackout. The piece suggests as many as five of the 12 voting FOMC members may be skeptical of further cuts, raising the risk of unusually tight vote margins — for example, 7–5 — that could muddy the Fed’s message and invite political pressure. [28]
According to reporting in The Wall Street Journal, Powell’s close allies on the committee have worked to prepare the ground for a December cut, building support among centrist governors and like-minded regional bank presidents. [29] But Powell will still need to navigate hawks who see inflation risks as paramount, as well as doves who would prefer an even deeper or faster easing cycle.
Political noise is growing in the background. The October minutes and subsequent reporting highlight repeated criticism of Powell from President Donald Trump, who has openly complained the Fed has not cut quickly enough. [30] At the same time, speculation about Kevin Hassett as a potential successor — cited in BofA’s analysis — and broader debates over Fed independence add another layer of uncertainty for investors. [31]
What Markets Are Pricing In Now
Different sources give slightly different point estimates, but they tell a consistent story:
- Reuters, citing CME FedWatch, puts the probability of a December cut at around 87–88% as of December 1. [32]
- FX and macro strategists at Brown Brothers Harriman note futures pricing closer to 83% for a December 10 cut, and see narrowing rate differentials as a reason the dollar has slipped from recent highs. [33]
- Market commentators like Ed Yardeni mention the odds have surged from roughly 50% to around 80% in a matter of days, with the leadership rumors adding to volatility. [34]
In equities, hopes for a “Santa rally” have collided with the fact that a December cut is now largely priced in. As one recent analysis put it, the year-end rally has stalled even though the futures market treats a quarter-point cut on December 10 as a near certainty. [35]
Broadly:
- Bond yields have drifted lower as traders position for easier policy, though moves have been tempered by uncertainty over 2026 and beyond. [36]
- The U.S. dollar has backed off multi-month highs, with strategists warning that if the Fed cuts while other major central banks stay on hold, the path of least resistance for the dollar may be down. [37]
- Equities remain sensitive not just to the rate decision but to hints about how many cuts may follow — and to the optics of a heavily split vote. [38]
What Investors Are Watching at the December Meeting
The Yahoo Finance segment “Fed’s December meeting: What investors are watching” captures what’s top of mind on Wall Street: the decision itself matters, but the forward guidance matters more. [39]
Key focal points:
- The policy statement and dot plot
- Does the Fed frame December as a one-off move to insure against labor-market downside, or as part of a more extended cutting cycle into 2026?
- Do the updated projections (if released) show a materially lower path for the funds rate next year?
- Powell’s press conference tone
- Markets will parse whether he emphasizes ongoing inflation risks or leans into labor-market worries and the risk of doing “too little, too late.” [40]
- His explanation of any dissenting votes will also be critical for understanding the committee’s center of gravity.
- Vote split and dissents
- A clean 10–2 or 9–3 vote for a cut would signal that the doves have the upper hand even if some hawks hold out.
- A razor-thin decision (for example, a 7–5 split either way) would underscore how fragile consensus has become and could increase future volatility. [41]
Impact on Households and Businesses: Don’t Expect a Mortgage Windfall
For consumers, a key question is what a December cut might mean for borrowing costs.
An analysis from Investopedia notes that while markets increasingly price in a quarter-point cut on December 10, mortgage rates don’t move one-for-one with the Fed funds rate. Instead, they track the 10‑year Treasury yield and broader expectations for growth and inflation. [42]
According to that report: [43]
- The average 30‑year fixed mortgage rate is around 6.4%, only slightly above a recent 13‑month low near 6.35% and well below the 7.15% peak seen in the spring.
- Even with a December cut, analysts expect only modest further declines, with mortgage rates likely stuck in the low-6% range through late 2026.
For would‑be homebuyers, the takeaway is that the timing of the Fed’s next move may matter less than personal readiness — credit score, down payment and income stability — with the option to refinance later if rates drift lower.
For companies, another quarter-point cut would:
- Reduce short-term financing costs, especially on floating‑rate lines of credit.
- Offer some relief to more leveraged firms and sectors sensitive to higher rates, such as small caps and commercial real estate.
- Potentially extend risk-taking in equity and credit markets if investors read the move as a green light for looser financial conditions — a risk that some officials have explicitly flagged. [44]
The Data and Events to Watch Before December 9–10
Between now and the meeting, several data releases and events could still nudge expectations, even in a world where official statistics are catching up after the shutdown:
- ISM manufacturing and services (November): These will help gauge whether the slowdown is broadening, especially via new orders, prices paid and employment subcomponents. [45]
- ADP private payrolls: A key proxy for the jobs market, given delayed BLS reports. [46]
- Core PCE inflation: The Fed’s preferred inflation measure remains a crucial swing factor. Recent commentary emphasizes that any surprise re-acceleration could quickly weaken the case for a December cut. [47]
- Remaining Fed speeches before the blackout: Powell is due to speak again this week, and markets will dissect every line for hints on whether he is leaning firmly toward a cut or still leaving all options open. [48]
Given how quickly probabilities have shifted in November, investors are keenly aware that one stronger‑than‑expected data point could still tip sentiment — even if the current bias clearly favors easing.
The Bottom Line
As December begins:
- Markets and most economists now see a December 10 rate cut as the base case.
- JPMorgan and Bank of America have joined the cut camp, adding institutional weight to that view. [49]
- Fed officials themselves remain sharply divided, and analysts expect an unusual number of dissenting votes that could test the central bank’s reputation for consensus and its communication skills. [50]
For investors, borrowers and businesses, the December meeting looks less like a simple yes‑or‑no on another 25‑basis‑point cut and more like a referendum on how the Fed balances jobs vs. inflation in a data‑scarce environment — and how unified it can appear while doing it.
However the decision falls, the tone of Powell’s press conference, the vote split, and the projected path for rates in 2026 may prove even more important than the move itself.
References
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