Investors Face Fed Policy Uncertainty Amid Data Gaps and Internal Divisions

The upcoming December Federal Reserve meeting faces significant headwinds from two major data reporting gaps and revisions, creating unusually high uncertainty for policy decisions.

First, the November 2025 Consumer Price Index (CPI), scheduled for release on December 18th, will be incomplete. October's data collection was hampered by a funding lapse, making October's CPI estimates unavailable and preventing the publication of month-to-month changes for November. This leaves policymakers without critical near-term inflation signals needed for rate decisions according to the BLS release. The absence of October figures particularly hampers the ability to assess recent price momentum accurately.

Simultaneously, the U.S. PCE price index, the Fed's preferred inflation gauge, faces a major revision. The December 23rd update will align PCE with revised Q3 GDP estimates. Analysts note this revision could meaningfully adjust inflation readings, potentially altering the perceived inflation trajectory that directly informs the Fed's December dot plot projections. While September's core PCE inflation held steady, the revised figures could shift that narrative.

This confluence of missing CPI data and pending PCE revisions creates an unprecedented data void for market participants. Asset managers struggle to model inflation paths without the October CPI baseline or finalized Q3 data, forcing potential recalibrations in fixed income positioning. Traders face heightened volatility as the likelihood of surprise Fed moves increases without clear inflation data to guide expectations. While the Fed has noted relevant speeches and dot plots won't be addressed by the BLS release, the lack of hard data amplifies the weight given to these communications.

For investors and traders, the key takeaway is profound policy uncertainty. The combination of a data gap in the CPI report and a significant PCE revision creates a challenging environment for monetary policy forecasting. Positions requiring clear inflation signals, whether defensive or aggressive, face substantial risk until these data points are resolved.

Conflicting Inflation Signals: Market vs. Real-Time Indicators

Last quarter's incomplete data left inflation's trajectory unclear. Now, two key indicators are sending conflicting messages that will likely shape the Fed's next move.

The 10-year U.S. (TIPS) yield, as of December 9, 2025, signals persistent inflation concerns in financial markets. Rising yields suggest investors are pricing in continued inflation pressure or tighter monetary policy ahead of the December meeting. These real-time market signals often anticipate central bank actions, creating anticipation for potential hawkish signals. However, the 's daily inflation nowcasts offer a different perspective. Their methodology, which integrates high-frequency data like oil and gasoline prices, has historically outperformed professional surveys and traditional models. This real-time approach provides sharper insights into inflation trends before official data releases, potentially catching early signals of weakness.

This divergence becomes critical amid emerging deflation risks. Falling energy costs and slowing home price growth are creating genuine downward pressure on inflation. For policymakers, these real-time signals suggest cooling inflation that could justify rate cuts, especially with a weakening labor market and rising unemployment. , the central bank must reconcile conflicting data. Chair Powell's upcoming press conference and updated Summary of Economic Projections will be crucial. If nowcasts confirm deflation risks while TIPS yields remain elevated, the Fed may signal reduced tolerance for further easing, creating potential volatility for fixed-income markets.

The outcome hinges on whether real-time indicators prove more accurate than market pricing. Should energy and home price deflation accelerate as nowcasts suggest, the case for aggressive easing strengthens. But if TIPS yields indicate persistent inflation expectations, policymakers may resist further cuts despite soft labor data. Investors must watch both the Cleveland Fed's daily updates and TIPS market movements closely ahead of the December decision.

Internal Policy Divergence

Fed Governor Christopher Waller pushed strongly for a 25-basis-point rate cut in December 2025, arguing labor market weakness demands action. He highlighted rising unemployment claims and layoffs, despite inflation nearing the 2% target when excluding tariff effects. Waller warned that delaying decisions risks harming lower-income households, especially as consumer sentiment declines amid restrictive policy. His stance reflects the view that sufficient data exists for immediate action, even with key reports delayed by a government shutdown.

Markets now price in an 89% chance of the cut, but uncertainty clouds the Fed's direction. The labor market signals lack clarity due to the delayed November CPI release, which cannot publish October's key metrics because of incomplete data collection from a funding lapse according to the BLS release. This gap forces policymakers to rely on partial indicators, complicating projections for both inflation and job growth. Chair Powell faces pressure to clarify whether this December move signals the start of multiple 2026 rate reductions or a one-off response to short-term instability.

Waller's labor-focused argument contrasts with colleagues prioritizing inflation risks. The Fed now sees emerging deflation threats from falling home prices and energy costs, complicating the balance between stimulating employment and maintaining price stability. Without full CPI data, the central bank must weigh incomplete labor reports against speculative housing and energy trends. Powell's upcoming press conference and updated projections will likely determine whether the December cut triggers broader easing or is met with hawkish caution in 2026.

Market Risk Amplification: Volatility and Positioning Vulnerabilities

The Federal Reserve's policy uncertainty lingered as December opened, intensifying concerns about how shifting monetary signals might impact financial markets. The 10-year U.S. Treasury Inflation-Protected Securities (TIPS) yield, a critical gauge of real interest rates and long-term inflation expectations, stood at a key level as of December 9, 2025, reflecting investor unease about future economic conditions and potential tightening pressure. According to the St. Louis Fed, this metric's movement became a focal point for market volatility.

While investors priced in a high probability of action from the Fed at its December meeting, the CME Group's 30-day Fed Funds futures . Yet, this apparent consensus masked deep internal divisions. The Fed's own forecasts, particularly in the Summary of Economic Projections, were clouded by delayed economic data, forcing policymakers to confront a complex landscape of rising unemployment, falling home prices, and declining energy costs that challenged traditional inflation models. Chair Powell's post-meeting press conference was expected to be closely scrutinized for any signals about the central bank's tolerance for further rate reductions.

Consequently, market positioning grew increasingly fragile. The anticipation of a rate cut boosted cash holdings as investors hedged against potential turbulence, but the lingering threat of a hawkish pivot if the Fed signaled reduced willingness to cut created significant volatility risk. This environment amplified the pressure on equity exposure, particularly for companies reliant on cheap capital, as any shift in real yields or policy direction could quickly erode valuations built on future earnings expectations. .

Evidence Sources

id_1: TIPS yield analysis from Fed's H.15 reportid_4: Cleveland Fed nowcast methodologyid_7: Fed meeting expectations and deflation risks