Strong Jobs and Sticky Inflation Undermine Fed's Rate Cut Hopes

The probability of a December Federal Reserve interest rate cut has fallen below 50% for the first time in months, reflecting a shift in policymaker sentiment and evolving economic signals. Market pricing, as tracked by the CME FedWatch tool, now shows a 48% chance of a 25-basis-point cut in the central bank's December meeting, down from 94% in early November. This decline underscores growing skepticism among Fed officials and analysts about the urgency of further easing amid persistent inflation and resilient economic activity.

Dallas Federal Reserve President Lorie Logan, a non-voting member this year, reiterated her opposition to a December cut on Friday, emphasizing that inflation remains too high and trending upward. "Until I see convincing evidence that we are headed all way back to our 2% target, I really do think modestly restrictive policy is appropriate," she stated at an energy conference. Logan's stance aligns with her previous vote against the October rate cut, which she argued was premature given the Fed's ongoing battle to curb inflation. She noted that the labor market is cooling but at a "gradual and appropriate" pace, which she views as necessary to maintain downward pressure on prices.

Minneapolis Fed President Neel Kashkari, who does not hold a vote this year, also signaled caution. In an interview with Bloomberg News, Kashkari said he opposed the October cut and remains undecided on the December meeting, citing "anecdotal evidence of underlying resilience" in the economy. He acknowledged that recent data have shown "more of the same" for the U.S. economy, leaving him open to both a pause and a cut depending on incoming data. Kashkari's indecision highlights the broader uncertainty among policymakers, with other officials like Boston's Susan Collins and Chicago's Austan Goolsbee also expressing wariness about further easing without clearer signs of labor market deterioration.

The market's dimming expectations for a December cut contrast with the Fed's October move, which was widely anticipated. Analysts note that the central bank's October action was "fully priced in" by investors, who had long expected the cut. However, the lack of new catalysts-such as a sharp slowdown in hiring or a significant drop in inflation-has eroded confidence in the need for additional easing. Ray Dalio, the billionaire investor, warned in November that the Fed is cutting rates into an environment of record-high asset prices and low unemployment, a historically unusual scenario that risks inflating economic bubbles.

Economic fundamentals have also shifted against a December cut. The U.S. labor market remains robust, with the unemployment rate hovering near multi-decade lows, while inflation, though easing, remains above the Fed's 2% target. These conditions have reinforced the argument that further rate hikes or a pause are more prudent than immediate cuts. The Fed's next meeting, scheduled for December 17-18, will be closely watched for any signals about the path of policy in 2026.