Federal Reserve Chairman Jerome Powell speaks during a press conference after the Federal Reserve Board’s Federal Open Market Committee meeting on October 29, 2025 in Washington, DC.
Alex Wong | Getty Images
Federal Reserve Chairman Jerome Powell wasn’t kidding when he said a few weeks ago that there were no plans to cut interest rates in December.
Recent statements from Powell’s colleagues suggest there is a lot of concern about whether the People’s Bank of China should implement a third consecutive round of easing measures at its Dec. 9-10 meeting.
As a result, the market readjusted its expectations. Until a few days ago, traders were pricing in at least a 2-to-1 chance of a quarter-point rate cut, but that has now been reversed by the coin toss, according to futures market figures compiled by CME Group’s FedWatch tool.
“These developments gradually erode our confidence that the Fed will cut rates in (December) and do not provide further confidence that it is better to skip to (January),” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a note. “Therefore, a reduction (in December) is still likely, but only at a rate of 55-60%.”
As of Thursday afternoon, the implied probability of a rate cut was 49.4%, according to CME Gauge, which uses the price of 30-day federal funds futures contracts to interpolate the probability of interest rate changes. Futures prices suggest the fund rate will be 3.775% by the end of 2025, compared to the current level of 3.87%.
A month ago, the market expected a 95% chance of a rate cut.
So what has changed? Mainly the uncertainty when the flow of official data stops due to the currently resolved government shutdown. Some Fed officials are concerned about acting blind to the data at a time when the latest data shows a softening labor market and inflation has fallen slightly but remains well above the Fed’s 2% target. Additionally, White House press secretary Caroline Levitt said Wednesday that some data, particularly for October, may never be released.
unexpected voice
Those reservations emerged Wednesday in an uncharacteristically candid assessment from Boston Fed President Susan Collins.
During his time at the Fed, Mr. Collins has used careful language when expressing his policy opinions. But speeches she gave to her local constituency left little doubt about her concerns about inflation and the importance of the Fed staying on course until there is more economic transparency, at least for now.
“Given my fundamental outlook, it would be appropriate to keep policy rates at current levels for some time to balance inflation and employment risks in this highly uncertain environment,” Collins said. “I think there are several reasons why the bar for further easing is relatively high in the short term.”
Her central argument is that despite the slowdown in employment, the economy generally looks strong. Collins reasoned that further rate cuts risked pushing up inflation while the impact of the tariffs was still unclear.
Noting the Fed’s dual mandate of maximizing employment and maintaining price stability, he said, “I think the current level of policy rates puts policy in a good position to address a variety of potential outcomes and balance risks on both sides of our mandate.”
For his part, Mr. Collins will be part of a hawkish group that includes Kansas City’s Regional President Jeffrey Schmidt, who unlike Mr. Collins voted against the October cuts, as well as Beth Hammack of Cleveland, possibly Alberto Musallem of St. Louis and Rory Logan of Dallas.
On the other side of the interest rate fence are Governor Stephen Milan, who opposed a quarter-point cut in two meetings and supported a half-point cut, and Governors Christopher Waller and Michelle Bowman.
There is a need to build consensus following Chairman Powell’s comments after October’s rate cut that “further cuts in policy rates at the December meeting are not a foregone conclusion, and far from a conclusion.” There will be no Fed policy meeting in November.
be on your side
Stocks fell on Thursday and Treasury yields rose as the market lost confidence in a rate cut in December.
Mr. Powell’s dilemma has become even more acute as the Federal Open Market Committee faces a series of unusual dissenting opinions.
“I don’t think Mr. Powell wants the committee to be deeply and openly divided with the populist hawks.”
“At this moment of systemic danger, there is a lot of dissent. In our view, this is why he and his top surrogates (FOMC Vice Chairman Philip Jefferson, New York Fed President John) and Williams took a conciliatory stance, respected the arguments of the hawks, and insisted (in December) that the market view was 50-50,” Guha said.
One compromise for Chairman Powell would be a “hawkish interest rate cut.” While the committee agreed to another rate cut, the chair said further rate cuts were unlikely. The composition of the FOMC will change as new regional presidents take up voting power in January and Powell’s term as chair nears its end in May. Hawks like Mr. Collins and Mr. Schmidt will be gone, but Mr. Hammack and Mr. Logan will move into voting positions.
“Keeping all this in mind, Powell believes the Fed may have to strike a compromise between (1) keeping rates on hold in December, or (2) if it cuts rates, it will then be obligated to signal that the rate-cutting cycle may end,” said Thierry Wismann, global currency and rates strategist at Macquarie Group.
Traders expect the committee to soften its stance in January. Futures prices indicate there is about a 70% chance of a rate cut at the start of the new year if the FOMC decides to skip December.
