Markets Slip as Fed Decision Looms and Yield Tensions Deepen

At the opening bell Wednesday, U.S. stocks edged lower as traders positioned ahead of the Federal Reserve’s rate decision and updated guidance, with the Dow off 6.25 points (0.01%) to 47,554.0, the S&P 500 down 5.58 (0.08%) to 6,834.93, the Nasdaq lower by 63.10 (0.27%) to 23,513.4, and the Russell 2000 slipping 0.31 (0.12%) to 251.08. Risk sentiment was cautious rather than panicked: the VIX ticked up 2.6% to 17.37, crude futures for January 2026 softened 0.07% to $58.21, February 2026 gold eased 0.21% to $4,227.30, and Bitcoin added 1.74% to $92,025.63 as investors weighed still-elevated long-term yields against expectations for a third consecutive quarter-point Fed cut.

Policymakers are widely expected to deliver a third straight quarter-point rate cut at 2 p.m. Eastern, lowering the federal-funds target range to 3.50%–3.75% from 3.75%–4%. Futures and options markets now price only about a half-point of additional easing in 2026, a much shallower path than investors anticipated earlier in the year. The September Summary of Economic Projections envisioned a gentle glide path: real GDP growth hovering near 1.8%–1.9%, unemployment around 4.3%–4.4% and inflation back near 2% by 2027, yet with the funds rate still at roughly 3.1%, well above its pre-pandemic norm.

That outlook collides with bond markets that are anything but dovish. Bloomberg data show global long-dated government bond yields have climbed to levels last seen in 2009, with money-market pricing implying little appetite for further cuts from the European Central Bank. Torsten Slok, chief economist at Apollo Global Management, notes that long-term U.S. interest rates are now higher than when the Fed began easing in September 2024 and have drifted above levels implied by short-term rates and oil prices, an unusual pattern compared with prior cutting cycles in 2001, 2007–08 and 2019.

Apollo’s charts show the yield curve steepening as the spread between 30- and 10-year Treasurys widens, forcing investors to ask whether markets are bracing for heavier Treasury issuance or for a future Fed leadership that might tolerate a higher inflation target, perhaps closer to 4% than 2%. AInvest highlights growing internal dissent within the Fed between officials focused on labor-market risks and those still preoccupied with inflation, and futures curves that assign 85%–90% odds to near-term cuts even as the SEP signals only gradual easing.

Corporate credit risk is never far from that debate, and this evening’s earnings report from Oracle will serve as a stress test. The software giant is balancing a $500 billion artificial-intelligence capex plan, a $455 billion backlog and roughly $100 billion in net debt. Around $300 billion of that backlog stems from multi-year compute commitments by OpenAI, a concentration that is drawing scrutiny as Google’s Gemini platform gains traction.

Street forecasts call for fiscal-second-quarter revenue growth of roughly 14%–16% and cloud growth in the low-to-mid-30% range, with non-GAAP EPS around $1.61–$1.65, but CFRA analyst Angelo Zino argues, “I don’t really think the numbers really matter here this quarter,” suggesting the stock will trade instead on perceptions of backlog quality, AI demand durability and balance-sheet risk.

On Main Street, meanwhile, the holiday season looks “merry but measured.” Bank of America Institute data show total credit and debit card spending per household up 1.3% year-over-year in November, down from 2.4% in October, with seasonally-adjusted spending flat month-over-month. Holiday-item spending was stronger, rising 4.9% year-over-year from early October through the day after Cyber Monday, though growth slowed to 2.7% in the final week of the period as early promotions and heavy online activity pulled demand forward.

The underlying distribution is more troubling. Lower-income households saw only 0.6% year-over-year growth in three-month average card spending in November, compared with 1.4% for middle-income and 2.6% for higher-income peers, while after-tax wage growth clocked in at 1.4% for the lower-income group versus 4% for higher earners. Gen X appears to have the weakest holiday spending among age cohorts. Yet Bank of America’s deposit data show median checking and savings balances still at least 5% above inflation-adjusted 2019 levels across income tiers, and the pace of drawdown has flattened, suggesting households retain some cushion even as they become more price-sensitive.

For markets, the picture is of an economy still growing but increasingly uneven, financed by a yield curve that is steepening rather than easing and by corporate balance sheets stretching to fund AI infrastructure on the promise of future cash flows. How the Fed frames today’s “hawkish cut” against that backdrop, and whether investors accept its gradualism in the face of higher long-term yields, may do more to set the tone for year-end trading than any single datapoint on growth or inflation.