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2025-10-31 11:11:23
[Hot Topic Analysis: Data Gap + Stubborn Inflation Changes the Outlook for a December Fed Rate Cut] 1. Despite investors' hopes for further easing, the Fed's meeting on Wednesday revealed an unclear path for rate cuts. Data shortages, persistent inflation, and disagreements among officials have added uncertainty to market expectations regarding future policy. 2. Fed Chairman Powell unexpectedly poured cold water on the idea, stating that a December rate cut is "not a done deal," far below the market's previous near-certain expectations. Following his remarks, Wall Street stocks gave back gains, and bonds were sold off. 3. The Fed's expected 25 basis point rate cut and announcement that it would stop shrinking its balance sheet as early as December had already been priced in by the market. The real shock comes from the lack of key data such as labor force data due to the US government shutdown, increasing the difficulty of policy and investment decisions. 4. BNY Americas macro strategist John Velis stated that the data vacuum will make the Fed's actions six weeks from now unpredictable, and expectations for a December rate cut may fluctuate significantly, triggering market turmoil. 5. Jim Caron, Chief Investment Officer of Morgan Stanley Investment Management, pointed out that Powell's uncertain comments have cast doubt on market expectations of a 3% interest rate cut by 2026, but a slowdown in the labor market could still provide a reason for a December rate cut. 6. Despite this, investors have not given up hope. LSEG interest rate futures show that the probability of a 25 basis point rate cut in December has fallen from 95% a week ago to 73% currently, but traders maintain their expectation of around 3% interest rates by the end of next year. 7. Michael Arone, Chief Strategist at State Street Investments, expects data to show weak employment, supporting action in December; Bespoke Investment, however, believes the meeting was hawkish, paving the way for a further downward revision of the probability of a rate cut.
