An Italian investment bank is breaking with an almost unanimous Wall Street consensus ahead of Wednesday's Federal Reserve meeting, predicting policymakers will hold rates steady despite markets treating another cut as nearly guaranteed.
Futures markets are pricing in a roughly 88% chance of a 25-basis-point cut at the Dec. 10 meeting, according to CME Fed Watch tool. On betting platform Polymarket, expectations are even stronger, with bettors assigning a 95% probability to a Fed rate cut.
But one outlier sees the Fed holding steady, a scenario that would turn a $10 bet into $200 if it proves correct.
UniCredit Stands Alone In Forecasting A Shocking Hold On Wednesday
Among 33 investment banks surveyed by Market News, 32 expect the Fed to cut rates by 25 basis points on Wednesday.
The Milan-based UniCredit is the sole exception.
In a note shared last week, Daniel Vernazza, UniCredit's chief international economist, said the outcome remains “a close call," but the bank expects the Fed to remain on hold.
"The outcome of the FOMC meeting remains a close call, in our view. Indeed, we expect the Fed to remain on hold, despite forward rates currently pricing in more than a 90% likelihood of a rate cut," the research note says.
According to the Italian bank, the meeting is shaping up to be one of the most contentious in years. Fed officials appear divided over whether to extend the easing cycle or pause after two consecutive rate cuts.
UniCredit analysts noted that while Fed Chair Jerome Powell previously indicated a December cut was "far from" certain, recent comments from New York Fed President John Williams suggested room for additional near-term adjustments.
The central bank faces unusual uncertainty due to missing key economic data. Employment and inflation figures for October and November have been delayed, leaving policymakers to rely on alternative indicators, including private-sector employment data that has shown mixed signals.
If the Fed cuts rates again, it would align with the path suggested in its September "dot plot," which projected two cuts by year-end.
But analysts at Unicredit say the absence of updated data and the approaching end of Powell's term in May could reduce the weight of those projections.
If The Fed Holds Rates Steady, Fasten Your Seat Belts
With markets pricing in an almost certain Fed rate cut on Wednesday, a surprise hold could send shockwaves through global assets, to say the least.
Unicredit’s Vernazza said a surprise pause could strengthen the U.S. dollar, though the extent of the reaction would depend heavily on how equity and bond markets respond and on any guidance offered by Powell.
UniCredit expects only two rate cuts next year, bringing the federal funds range to 3.25%–3.50% by the end of 2026. The bank argues that core inflation and overall economic conditions give the Fed little macroeconomic justification for easing further.
The S&P 500 — tracked by the Vanguard S&P 500 ETF (NYSE:VOO) — sits less than a percentage point from record highs, a reminder of how much optimism is already priced in.
And volatility has all but vanished: the VIX index is trading slightly above 16, near its year-to-date lows after spiking to 27 in November.
All of this sets the stage for a market that may be far more fragile than it looks.
UniCredit's call may be a long shot, but if it happens, investors will be forced to reassess a market priced for perfection.
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Image created using artificial intelligence via Gemini.
