The markets have already celebrated the Fed's next move — now they want a new reason to keep the party going.
Wall Street is all but sure that the Federal Reserve will cut interest rates by 25 basis points on Wednesday. That’s back-to-back reductions after the September move.
The Federal Open Market Committee (FOMC) will likely lower the federal funds rate to a 3.75%–4.00% range as the labor market slows and inflation normalizes.
A third cut in December now carries a 98% probability, according to the CME FedWatch Tool.
But the real action lies beyond the policy statement.
Will Fed Chair Jerome Powell hint that the door is wide open for more? Or, will he cite softening labor trends or ongoing data blackouts from the government shutdown as reasons for flexibility? Perhaps he’ll feed the growing narrative that a “Fed Put” is back.
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Markets Want Another Year-End Cut
David Mericle, economist at Goldman Sachs, said there’s no strong reason to veer from that trajectory:
"The median projection in the September dot plot showed a baseline of three cuts this year…we do not expect formal guidance about the December meeting, but if Powell is asked, he will likely be comfortable referencing the September dots."
Oxford Economics' Ryan Sweet echoed that view. The ongoing government shutdown, he says, has disrupted official economic releases. It could also nudge the Fed toward another rate cut, simply to avoid lagging behind the data curve.
"Discretion will remain a factor in December and the longer the shutdown drags on, the higher the odds of another rate cut," Sweet said.
With critical labor and inflation metrics missing due to the data blackout, Powell is likely to lean on alternative indicators. Private-sector employment data from ADP and job listings from Indeed may take center stage in his remarks.
Bank of America's economist Aditya Bhave expects Powell to keep things intentionally vague, noting that "the Fed is approaching its policy decisions absent government data" and will probably cite these third-party sources in his explanation of the Fed's view on employment and spending trends.
In addition, Bhave expects the central bank to announce an end to its balance sheet runoff—a policy known as quantitative tightening—which could signal a shift toward even more accommodative monetary policy heading into 2026.
What's Got Traders Buzzing: A Meltup In Motion
According to 22V Research's FOMC survey, half of the respondents expect a "risk-on" reaction following the meeting. Only 9% anticipate a selloff.
Over the past four trading sessions, the S&P 500, as tracked by the Vanguard S&P 500 ETF (NYSE:VOO), has marched to fresh record highs above 6,880 and is on pace to notch its sixth straight month of gains. In October alone, it's up over 3%.
According to CFTC-regulated betting platform Kalshi, there's now an 81% chance the index closes the year at 7,000 or higher. That implies the market is confident the rally still has at least 2% more upside in the final two months of 2025.
Even more eye-popping: 16% odds now price in a finish above 7,500 — a moonshot scenario that would represent a nearly 9% rally from current levels.
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Equity markets are already crushing record highs on a daily basis. Bulls are now sniffing a "meltup"—a late-stage euphoric rally driven not by fundamentals, but by fear of missing out and excess liquidity.
Veteran strategist Ed Yardeni raised the probability of a stock meltup scenario to 30%, trimming his base-case bullish outlook.
Accoridng to Yardeni, the Federal Reserve's recent moves are reawakening the so-called "Fed Put.” That’s when the central bank steps in to support markets — even though the economy may not need further rate cuts.
His base case: the S&P 500 would end 2026 at 7,700, after hitting 7,000 by the end of this year. Under a meltup scenario, those targets could be exceeded much sooner. As a result, the odds of a correction, bear market, or even a meltdown increase.
All eyes are now on Wednesday—not for what the Fed does, but for what Powell dares to say.
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