Market Sentiment Flips: From 95% Certainty to a Coin Toss

Just a month ago, financial markets were almost fully convinced that the Federal Reserve would proceed with another rate cut at its December 9–10 meeting.
CME FedWatch showed expectations as high as 95%, reflecting strong confidence that the Fed would keep easing after two consecutive cuts.

But this confidence has collapsed.

As of this week, the probability of a December cut sits around 49–50% essentially a coin flip.

The sudden shift wasn’t random. It stemmed from Powell’s recent caution, hawkish comments from several regional Fed presidents, a disruption in economic data, and growing concerns that inflation is not falling fast enough.

To understand the shift, we must look deeper at what has changed.

Why Are the Fed and Markets Hesitating? — Three Core Reasons

The Fed Is Operating With Limited Data — A Risky “Flying Blind” Scenario

The recent U.S. government shutdown delayed or disrupted the release of critical datasets, including:

• October jobs data

• CPI and PPI inflation reports

• Consumer spending and manufacturing indicators

This leaves the Fed without a complete picture of the economy.

Boston Fed President Susan Collins was unusually blunt:

“Absent clear evidence of labor market deterioration, I would be hesitant to support further easing.”

Making policy decisions without reliable data pushes the Fed toward caution rather than action.

Inflation Remains Elevated — And the Economy Isn’t Weak Enough to Justify Aggressive Cuts

Despite a cooling in hiring, inflation in the U.S. still sits well above the Fed’s 2% target.

Meanwhile, several parts of the economy remain resilient:

• Consumer spending remains solid

• Layoff activity is still moderate

• Service industries continue expanding

Cutting rates too soon could risk re-accelerating price pressures, especially with tariff impacts and cost-driven inflation still filtering through the economy.

Powell reinforced this by stating:

“A further rate reduction in December is not a foregone conclusion — far from it.”

It’s a message that the Fed will not repeat the mistake of easing prematurely.

The Fed Is Becoming Deeply Divided — A Rare Split Inside the FOMC

The Federal Open Market Committee is now split into two clear camps:

Hawkish Camp — Opposed to Further Cuts

Members include: Collins, Schmid, Hammack, Logan.
Their views:

• Inflation hasn’t cooled enough

• Cutting further may fuel new price pressures

• The economy still supports the current rate level

Collins stated firmly:

“There should be a very high bar for additional easing in the near term.”

Dovish Camp — Pushing for Deeper Cuts

Members: Miran, Bowman, Waller.
Their stance:

• Labor market is losing momentum

• Lower rates could support demand

• Some sectors are already feeling strain from prolonged high rates

This internal divide puts Powell in a difficult position —
cutting rates risks angering the hawks; staying on hold frustrates the doves and rattles markets.

The Fed Is Becoming Deeply Divided — A Rare Split Inside the FOMC

The Federal Open Market Committee is now split into two clear camps:

Hawkish Camp — Opposed to Further Cuts

Members include: Collins, Schmid, Hammack, Logan.
Their views:

• Inflation hasn’t cooled enough

• Cutting further may fuel new price pressures

• The economy still supports the current rate level

Collins stated firmly:

“There should be a very high bar for additional easing in the near term.”

Dovish Camp — Pushing for Deeper Cuts

Members: Miran, Bowman, Waller.
Their stance:

• Labor market is losing momentum

• Lower rates could support demand

• Some sectors are already feeling strain from prolonged high rates

This internal divide puts Powell in a difficult position —
cutting rates risks angering the hawks; staying on hold frustrates the doves and rattles markets.

Market Reaction: Tension Returns

Following the sharp drop in rate-cut expectations:

• U.S. equities pulled back, especially tech

• Treasury yields climbed as investors repriced interest-rate risk

• The U.S. dollar strengthened

• Gold became volatile, lacking a clear direction

Markets are now hanging on every Fed remark, attempting to decode December’s outcome.

December Is No Longer About Cutting Rates — It’s About Maintaining Credibility

The December 2025 meeting is no longer a guaranteed rate cut. It is a test of balance, discipline, and communication.

Powell must juggle three priorities:

1. Preserve the Fed’s credibility

2. Maintain unity within the FOMC

3. Avoid triggering a resurgence of inflation

Markets now enter December with elevated uncertainty, preparing for volatility before, during, and after the meeting.

This is no longer a discussion about whether rates will be cut once more —
it is about whether Powell can navigate the most delicate moment of his tenure without destabilizing the economy or the institution he leads.

Source: CNBC