Fed's December Rate Cut Hangs in Balance as Shutdown Delays Data and Splits Policymakers

The Federal Reserve's upcoming December rate cut remains uncertain, despite market expectations of a 90% probability for a 25-basis-point reduction, according to the CME Group's FedWatch tool. However, economists and policymakers caution that key economic data—delayed by the ongoing U.S. government shutdown—could complicate the central bank's decision-making process. With the Fed's final meeting of the year scheduled for December 9–10, the path to a rate cut is clouded by unresolved fiscal and labor market uncertainties, as a CBS News explainer notes.

The government shutdown, now in its 28th day, has stalled critical data releases, including October's consumer confidence and employment figures. These metrics are vital for assessing inflationary pressures and labor market health, both of which influence the Fed's policy trajectory, according to a Nasdaq report. While some analysts predict the shutdown will resolve by November, its prolonged duration has already introduced volatility into markets. For instance, the S&P 500 surged to record highs in October, buoyed by a dovish Fed outlook and strong third-quarter earnings from tech giants, according to a TradingView analysis. Yet, the absence of timely data raises questions about the reliability of the Fed's decision-making framework.

Internal divisions within the Federal Reserve further complicate the outlook. Dallas Fed President Lorie Logan has publicly opposed recent rate cuts, arguing that the labor market remains "broadly in equilibrium" and inflation above the 2% target still poses risks. Her stance reflects a growing policy divide, with two Fed officials voting against the October rate cut, as noted in a Bitget article. Conversely, Federal Reserve Chair Jerome Powell has emphasized the need for caution against labor market slowdowns, framing the October cut as an "insurance" measure. This divergence underscores the challenge of balancing inflation control with economic growth in a fragile environment, as described in an Advisor Perspectives piece.

Mortgage markets have already responded to the Fed's easing cycle, with 30-year rates averaging 6.19%—a significant decline from the 7% mark at the start of the year. While some homebuyers await further reductions, experts warn against overreliance on future cuts. "Rates have already fallen meaningfully, and waiting for an ideal level could delay necessary action," noted one CBS News analysis. Historical trends also caution against complacency: after a September 2024 rate plunge to a two-year low, rates rebounded within weeks.

Global markets are similarly on edge. The U.S. dollar weakened against the euro as traders priced in a 68% chance of a Bank of England rate cut in December, while Bitcoin traders awaited clarity on Fed policy and U.S.-China trade negotiations, according to an FXStreet report. Meanwhile, corporate earnings from tech and retail sectors have driven equity markets higher, with mega-cap firms like Microsoft and Amazon dominating performance, as noted in a TradingView analysis.

The Fed's December meeting will be pivotal. If the shutdown resolves, newly released data could either confirm or challenge the case for further easing. For now, the central bank's dual mandate—price stability and maximum employment—remains in tension, with policymakers navigating a complex web of fiscal uncertainty and market expectations, as discussed in an Advisor Perspectives analysis.