Fed's Data Delays and Divisions Derail December Rate Cut Hopes

The probability of a 25 basis points interest rate cut by the Federal Reserve in December has plummeted to 33%, according to market data, a sharp reversal from earlier expectations of near-certainty. The decline follows the cancellation of the October nonfarm payrolls report due to the government shutdown and the delayed release of November data, which now falls after the Fed's final 2025 policy meeting. Traders on the now price a 33% chance of a cut, down from 50% just a day earlier and a stark contrast to the 100% odds in early November according to market analysis.

The Federal Reserve's decision hinges on a lack of timely labor market data, with the Bureau of Labor Statistics (BLS) confirming the September jobs report-released last week-will be the last major input for policymakers before their December meeting. The September data showed 119,000 jobs added, exceeding expectations, but the unemployment rate rose to 4.4%, the highest since October 2021 according to market analysis. While the headline payroll number exceeded forecasts, the uptick in unemployment has raised concerns about underlying economic fragility. "All those numbers suggest an economy that's still hanging in there," said former Fed Vice Chairman Roger Ferguson, noting the labor force participation rate and wage growth remain strong according to market analysis.

The Fed's internal divisions have further clouded the outlook. Minutes from the October meeting, released last week, revealed deep disagreements among policymakers about the appropriateness of further easing. While some members saw a case for a cut, "many participants suggested that it would likely be appropriate to keep the target range unchanged for the rest of the year," according to the minutes according to the minutes. This divergence has amplified uncertainty, with markets now pricing in a higher threshold for action.

The selloff in risk assets has accelerated as rate cut expectations dim. Bitcoin, which traded near $110,000 in late October, has fallen to $89,000, while crypto-related stocks like Circle (CRCL) have dropped nearly 50% according to market analysis. The Crypto Fear & Greed Index, a sentiment indicator, has fallen to 15, signaling "extreme fear" among investors. Meanwhile, the U.S. dollar has strengthened against the euro and yen, with the greenback breaking above its 200-day moving average as traders bet on prolonged hawkish policy according to market analysis.

Goldman Sachs' Kay Haigh, however, argues that a December cut remains possible if the Fed prioritizes the unemployment rate, which has risen to 4.4% according to market analysis. The firm notes that immigration crackdowns and a shrinking labor pool could keep the job market tight even as headline hiring slows. Yet with the November jobs report delayed until after the December meeting, the Fed will lack real-time data to guide its decision, increasing the likelihood of a pause.

The Fed's final 2025 meeting, scheduled for December 10–12, will now likely focus on maintaining stability amid a fragile economic outlook. With markets pricing in a 67% chance of no rate cut, the central bank faces a pivotal test of its ability to balance inflation control with growth support in an environment of incomplete data.