Two weeks ago, a December rate cut looked dead. Today, markets are pricing in a 79% chance it happens.
What changed? A combination of weakening job data, Fed officials signaling openness to cuts, and the simple reality that keeping rates elevated might do more harm than good. Let's break it down.
The Shift In Sentiment
In mid-November, the probability of a December cut dropped below 50%. JPMorgan was calling for a January cut instead. Markets sold off. Then New York Fed President John Williams gave a speech that changed everything.
"I still see room for a further adjustment in the near term," Williams said, essentially opening the door for another quarter-point reduction. Goldman Sachs immediately called it — the September jobs report, though delayed by the government shutdown, "may have sealed" the December cut.
Where Rates Stand Now
The Fed already cut rates twice this fall, bringing the federal funds rate to 3.75%-4.00%. That's the lowest since December 2022, but still considered "mildly restrictive" by most measures.
A December cut would bring rates to 3.50%-3.75%. Markets are pricing in two more cuts in 2026 after that.
The Fed Is Divided
Here's where it gets interesting. The October meeting saw two dissents — one member wanted a bigger cut, another wanted no cut at all. Chair Powell himself warned that December wasn't a "foregone conclusion."
Boston Fed President Susan Collins said last week she's "leaning against" a December cut. Kansas City's Jeff Schmid voted to hold rates steady in October. But the leadership seems inclined to cut, and that usually carries the day.
What This Means For You
If you have a mortgage, lower rates are obviously good news — though 30-year rates are already down to about 6% from over 7% in January. Credit card rates might tick down slightly. Savings account yields will continue their slow decline.
The bigger picture is that the Fed thinks the economy needs support more than it needs inflation protection right now. Whether that's the right call depends on data we won't have for months.
The December 9-10 meeting will give us answers. Until then, the betting markets have spoken: cheaper money is coming.