The Fed’s Next Rate Move Has Everyone Guessing. Why Confusion Reigns.

The Federal Reserve’s next rate-setting meeting is Dec. 9-10, 2025. (Kevin Dietsch/Getty Images)

Key Points

• Market odds for a December rate cut surged above 70% after New York Fed President John Williams signaled support for lowering rates.
• The absence of key government data, due to a shutdown, has left policymakers and investors without full information for year-end decisions.
• Federal Reserve officials are divided, with some citing 3.0% inflation as too high, while others prioritize weakening labor demand.

No one seems to agree on the Federal Reserve’s next move.

Investors, analysts, and even Fed officials themselves appear increasingly torn. A weakening labor market, still-high inflation, gaps in critical economic data, and a sharply divided rate-setting committee have left investors trading on mere fragments of information, in a landscape that has become unusually hard to read.

Market odds for a December rate cut have swung wildly this week. They bottomed at 30% Wednesday, after October’s policy meeting minutes showed the bank was leaning toward keeping rates steady in December. But on Friday, that probability skyrocketed above 70%, according to CME FedWatch, after a senior Fed official revived investors’ rate-cut hopes.

In a speech on inflation targeting, New York Fed President John Williams signaled his support for lowering rates at the central bank’s final meeting of the year, on Dec. 9-10. He said there might be “room for a further adjustment in the near term,” pushing Treasury yields lower. Fed officials have cut interest rates by a quarter percentage point twice so far this year, to 3.75%-4.00%.

The sudden repricing in rate-cut odds says more about the uncertainty surrounding the Federal Reserve than it does about Williams himself. With limited data available and disagreements among policymakers, markets appear to be reading far more into comments—and reacting much more strongly—than policymakers might have intended. With the central bank’s communications blackout starting on Nov. 29, and the Thanksgiving holiday next week, the Fed has little time to manage expectations.

Williams’ remarks weren’t an explicit comment on the December meeting. Still, traders moved quickly Friday, interpreting “near term” as a strong hint about what comes next. Krishna Guha of Evercore ISI told clients in a note that the most natural reading of the phrase points to the December meeting and claimed that senior Fed officials rarely float strong policy signals without coordination from Chair Jerome Powell.

One key reason for the market’s whiplash is the absence of government data.

The government shutdown, which ended earlier this month, erased the October consumer price index report and delayed the jobs figures. That has left policymakers, and investors, without a full set of readings that typically shape year-end decisions. When the September employment report finally arrived Thursday, it delivered a mixed message. Payroll growth was stronger than expected, but unemployment rose to 4.4%, a four-year high. The result was a data set that could support whichever argument a policymaker already favored.

Those arguments are increasingly diverging. Several voting officials have stressed that inflation remains too high and too sticky to justify lowering rates further. Inflation was running at 3.0% in September, a percentage point above the central bank’s target.

Boston Fed President Susan Collins has warned that the slowdown in price pressures has stalled, while Austan Goolsbee, president of the Chicago Fed, said Thursday that he felt “uneasy” about “front-loading” more rate reductions. Kansas City Fed President Jeffrey Schmid voted against October’s rate cut, in favor of a pause. Gov. Michael Barr has also indicated that he believes inflation is still too elevated.

On the other side are officials who believe weakening labor demand poses a greater risk. Gov. Christopher Waller has described the jobs market as “still weak and near stall speed,” while Gov. Stephen Miran has pushed at recent meetings for a larger half-point cut. Gov. Michelle Bowman has also signaled her support for further easing.

Analysts are similarly split. Citi told clients that a December move has become “a close call,” while still expecting the Fed to cut again this cycle. Morgan Stanley, noting elevated downside risks to employment, forecast three rate cuts in 2026, though it no longer expects the Fed to ease in December.

All of that leaves investors latching onto Williams’s language—not because it is definitive, but because it is one of the few available signals before the Fed falls silent.

With the blackout period beginning soon and policymakers unlikely to elaborate much before then, the final stretch into December’s meeting is likely to remain marked by ambiguity.

Write to Nicole Goodkind at nicole.goodkind@barrons.com.