Fed’s December Cut Debate Heats Up, Now With More Data

Core Viewpoint - The Federal Reserve is experiencing a significant divide among its officials regarding the potential for a rate cut in December, with one faction advocating for a cut to support a weakening job market, while another faction emphasizes the need to address persistent inflation above the 2% target [1][6][11]. Market Reactions - Investor sentiment is fluctuating due to the uncertainty surrounding the Fed's decision, with expectations for a December rate cut swinging dramatically based on new data and Fed comments [3][6][7]. - The probability of a rate cut dropped to 39% following comments from Fed Chair Jerome Powell but later surged to over 70% after dovish remarks from New York Fed President John Williams [7][8]. Economic Indicators - The September jobs report revealed 119,000 jobs added, but the unemployment rate increased to 4.4%, the highest since October 2021, leading to differing interpretations among Fed officials [4][10]. - Fed officials are closely monitoring upcoming economic data, including a delayed retail sales report, which is expected to provide further insights into consumer spending [13]. Diverging Perspectives - Dovish officials, like John Williams, argue for a rate cut to support maximum employment, acknowledging that inflation is currently around 3% and forecasting a return to 2% by 2027 [8][9]. - Conversely, hawkish officials express concerns about inflation risks, with some suggesting that lowering rates could exacerbate inflationary pressures and encourage risk-taking in financial markets [11][12]. Future Outlook - The Fed's decision in December will significantly impact borrowing costs, market sentiment, and the economic outlook for growth and inflation in 2026 [3][6]. - Analysts predict a "dovish hold" in December, meaning rates may remain unchanged but with indications of potential cuts in the future [14].