It’s looking increasingly likely that Jerome Powell’s Christmas gift to markets will be an economic lump of coal, rather than what’s on Wall Street’s wish list. Odds for a December cut to interest rates at the Federal Open Market Committee’s (FOMC) final meeting of the year are fading fast, despite hopes all year for one last reduction. At the time of writing, CME’s FedWatch barometer shows a 32% probability of a 25bps cut next month. That’s compared to a 98.9% conviction of a cut a month ago.
The general consensus is now for the Fed to keep rates hold, with the base rate sitting at 3.75% to 4%. This will likely infuriate the White House, which has been pushing throughout 2025 for significant reductions—with President Trump blaming “Too Late Powell” for a housing crisis in the U.S.
While Wall Street won’t love a hold, it does have some justification for betting on one in advance of the U.S. Federal Reserve decision. Notes from the FOMC’s most recent meeting in October, released yesterday, painted a picture of a divided committee.
Fed members were split on inflation, which should be at 2%, but currently sits at 3%. The notes described how several members were comfortable with current levels, arguing it’s “close” to target.
“Close” isn’t close enough for others, the report adds: “Many participants, however, remarked that overall inflation had been above target for some time and had shown little sign of returning sustainably to the 2% objective in a timely manner.”
This split in opinion was the running theme of the meeting, it seems, with the notes observing there were “strongly differing views” about the appropriate action for monetary policy at the December meeting. “Several participants” called for a December cut, while “many participants” said it would be appropriate to leave the rate unchanged. The one thing they agreed on? “Monetary policy was not on a preset course.”
While it’s Powell’s job to rally the committee toward as great a consensus as possible, it’s clear where the outliers in December may be. Trump appointee Stephen Miran, for example, advocated for a 50bps reduction in October.
The Fed’s dual mandates—control inflation and aim for full employment—are now in contradiction to each other: While inflation is a check in the box for a rate hold, the deteriorating employment situation runs counter to that, tempting the FOMC toward another cut.
The committee said it is “attentive to the risks to both sides of its dual mandate and that downside risks to employment had risen in recent months.” America’s labor market has stagnated into a low-hire, low-fire economy, according to Chairman Powell, the full details of which have been obscured by a data blackout during the government shutdown.
Even without this information, the FOMC expects the jobs landscape to deteriorate gradually in the coming months, with a less dynamic market into next year.
“Participants generally attributed the slowdown in job creation to both reduced labor supply—stemming from lower immigration and labor force participation—and less labor demand amid moderate economic growth and elevated uncertainty,” the notes add. “Many participants remarked that structural factors such as investment related to AI and other productivity-enhancing technologies may be contributing to softer labor demand.”
Jobs report furthers hold bets
Despite the gloomy outlook for the jobs market—which would be a motivator for a cut if it worsened—economists are widely expecting an increase in reported roles in today’s jobs report.
Goldman Sachs’s David Mericle wrote in a note to clients overnight that he expects the employment rate to hold steady at 4.3%. He wrote: “Our job growth tracker based on alternative data rose in September to a pace of 85,000 private sector jobs. We expect a 5,000 decline in government payrolls, reflecting a 10,000 decline in federal payrolls.
“We also expect the usual upward revision to August payroll growth, where the seasonal factors appear to be inappropriate for the initial print. August has been revised up by an average of 38,000 on the second release and about 60,000 on the second and third releases combined.”
This minimally upward trajectory was echoed by RSM chief economist Joe Brusuelas, who wrote in a note shared with Fortune this week he expects a 50,000 increase in the September report. He also anticipates upward revisions to both the July and August jobs estimates, increasing employment to near 100,000 roles in the report.
This, in turn, will “likely further dampen expectations of any prospective rate cut at the Fed December policy meeting.”