Fed's December Dilemma: Weighing Jobs vs. Inflation as Data Delays Muddle Calls

The probability of a U.S. Federal Reserve interest rate cut at the December FOMC meeting has fallen below 50%, according to prediction markets and financial indicators, as uncertainty over inflation, labor market dynamics, and delayed economic data complicates the central bank's decision-making process. As of November 11, Polymarket data showed 68% of traders anticipating a 25-basis-point cut, while 30% expected no change, with just 2% forecasting a larger 50-bp reduction. Meanwhile, CME Group's FedWatch tool, which tracks implied probabilities indicated a 63.6% chance of a 25-bp cut and a 36.4% likelihood of maintaining rates in the 3.75-4% range.

Fed Chair Jerome Powell has signaled that further rate cuts are far from guaranteed. In his post-meeting press conference, Powell emphasized that the Federal Open Market Committee (FOMC) remains divided over whether to prioritize easing rates to support the labor market or maintain higher rates to combat inflation. This internal debate has been exacerbated by the U.S. government shutdown, which delayed the release of critical economic data, including October and November labor and inflation reports. While some data may become available before the December 9-10 meeting, key metrics could still arrive too late to inform the Fed's decision.

The market's shifting expectations reflect broader economic anxieties. Goldman Sachs, however, has maintained a more aggressive forecast, predicting three rate cuts between December 2025 and June 2026, with the terminal rate targeting 3-3.25% by mid-2026. Analysts at the firm argue that lower rates would boost liquidity, potentially benefiting risk assets like cryptocurrencies. This aligns with recent trends, as crypto markets have seen volatility amid mixed signals from central banks. Bitcoin's pullback below $100,000 in late October, for instance, highlighted the sector's sensitivity to rate expectations.

Investor sentiment also diverges. The Seeking Alpha Sentiment Survey revealed that subscribers were split on the likelihood of further 2025 rate cuts, contrasting with the more hawkish tone of Powell's comments. The survey's results, which predated the October FOMC meeting, now appear more aligned with the current 67% probability of a December cut on CME FedWatch-a drop from the 90% odds seen in October. This shift underscores the challenges of forecasting in an environment where data gaps and policy uncertainty dominate.

The December meeting will be pivotal for shaping 2026 market dynamics. If the Fed opts for a pause, it could signal a prolonged policy status quo, reinforcing inflation-fighting resolve but risking labor market strains. Conversely, a 25-bp cut would reflect a tilt toward economic growth, potentially spurring a broader market rally. With the government shutdown nearing resolution, incoming data over the next few weeks will be critical in crystallizing the Fed's path.