Fed Chair Jerome Powell firmly pushed back against market expectations for a December rate cut on Wednesday, cautioning that it's more prudent to slow down when visibility is low—yet his remarks only modestly dented investor optimism, with traders still essentially betting on another move by the end of the year.
Market-implied odds of a December cut, tracked by Fed Funds futures, dipped after Powell’s comments but remain elevated.
As of Thursday morning, traders were still assigning a 69% chance of a 25-basis-point cut at the December 10 meeting, according to CME FedWatch. Kalshi, a CFTC-regulated prediction market, pegged those odds at 74%.
Why Powell Thinks The Fed Should Pause
In his press conference following the Fed's decision to cut rates by 25 basis points to 3.75%-4.00%, Powell was unusually direct in rebuffing assumptions of an imminent third cut:
"A further reduction in the policy rate at the December meeting is not a foregone conclusion — far from it," he said. "Policy is not on a preset course."
He emphasized that the Federal Open Market Committee remains "strongly divided" on how to proceed.
Some members see mounting risks to inflation, while others are increasingly concerned about the labor market. This divergence, Powell said, reflects differing risk tolerances and economic forecasts.
"There's a growing chorus now of feeling like maybe this is where we should at least wait a cycle," Powell added, suggesting a pause could be on the table even if further data points toward weakness.
In addition, the ongoing government shutdown has delayed key macroeconomic indicators, including jobs and inflation reports.
Powell didn't rule out acting without complete data, but made clear that higher uncertainty could tilt the Fed toward inaction. "What do you do if you’re driving in the fog? You slow down. That could or could not affect the December meeting.”
Split Reactions From Analysts
Goldman Sachs economist David Mericle described Powell's tone as "more hawkish than we had expected," noting the Fed Chair avoided referencing the September dot plot, which had suggested another cut was likely.
"He made three statements that likely contributed to the bond market's perception of today's press conference as a hawkish surprise," Mericle said.
Still, Goldman maintains a December cut is likely, citing continued labor market cooling, inflation excluding tariffs nearing the 2% target, and the Fed's recent history of "risk management" easing cycles.
“We still think a December cut is quite likely because the September dots implied that most participants saw it as the baseline, the labor market data are unlikely to send a convincingly reassuring message by the December meeting, and Powell sees the policy stance as contributing to labor market cooling,” Mericle said.
Not all analysts agree that another cut is coming.
Bank of America's Aditya Bhave said Powell "pushed back stridently" and that the lack of data may shift the burden of proof onto incoming alternative indicators.
“We remain comfortable with our view that the Fed will not cut rates again under Chair Powell,” Bhave said.
The economist explained that the December policy decision could prove even more contentious than the October meeting.
If the Fed proceeds with another cut, officials seen as more hawkish—such as Michael Barr, Austan Goolsbee and Alberto Musalem, who likely projected just one rate cut for 2025 in September—might join Jeffrey Schmid in dissenting.
On the other hand, if the Fed opts to hold rates steady, more dovish members who likely favored three cuts—such as Michelle Bowman, John Williams and Christopher Waller—could also break ranks, adding to Stephen Miran's earlier dissent.
Ed Yardeni echoed the concern, noting that some FOMC participants may fear that further easing could ignite "animal spirits" in equity markets, risking financial instability.
The 10-year Treasury yield rose back above 4.00% after Powell's remarks, suggesting bond traders share that skepticism.
Despite adverse reactions to Powell’s remarks, the S&P 500 – as tracked by the Vanguard S&P 500 ETF (NYSE:VOO) – closed lower after touching record highs intraday. Still, Chris Zaccarelli of Northlight Asset Management maintained a bullish stance.
"We think this will prove to be a buying opportunity," he said. "The Fed is likely to continue to support both stock and bond markets by cutting rates significantly over the next 12 months—even if they hold in December," Zaccarelli said.
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