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Fed Officials Can't Agree on What Comes Next, December Rate Cut Looking Unlikely

MarketDash Editorial Team
18 days ago
The Federal Reserve is deeply divided on interest rate policy, with officials split on whether to cut rates again in December. Market expectations have shifted dramatically, now pricing in a 66% chance rates stay put.

The Federal Reserve has a problem: its officials can't seem to agree on where interest rates should go next. That disagreement is now casting serious doubt on whether we'll see another rate cut in December, and markets are taking notice.

Minutes from the Federal Open Market Committee meeting on October 28-29 revealed a Fed that's more fractured than usual. Officials voted to lower the federal funds rate to 3.75%-4.00% at that meeting, but the consensus pretty much ended there. While many supported the October cut, some members admitted they could have been fine with keeping rates unchanged entirely.

December Cut? The Fed Can't Decide

Here's where things get interesting. Several Fed participants said another rate cut in December "could well be appropriate" if the economy develops as expected. That sounds promising, right? Not so fast. According to the minutes, "many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year."

Translation: the Fed is genuinely split on this one. The only thing everyone agreed on was that monetary policy isn't following a predetermined path and will depend on incoming economic data.

Markets responded swiftly to the divided outlook. The CME FedWatch tool now shows a 66% probability that rates will hold steady at 3.75%-4.00% next month, with only a 34% chance of a 25-basis-point cut. That's a dramatic reversal from last week, when investors were pricing in a 65% chance of a cut. Even just before the minutes dropped, it was a coin flip at 50-50.

Part of the Fed's hesitation stems from inflation that refuses to behave. Officials noted that core inflation remains elevated, with disinflation in housing services more than offset by rising goods prices driven by tariff increases earlier this year. When one problem improves but another worsens, you're not really making progress.

AI Euphoria Has the Fed Worried

Beyond inflation concerns, Fed officials are growing anxious about financial market stability, particularly around the artificial intelligence boom. Several participants flagged the risk of a sharp, disorderly decline in stock prices if investors suddenly reassess AI-related prospects.

The minutes noted that broad equity indexes have continued climbing, propelled by large technology companies riding waves of AI optimism. That enthusiasm has pushed valuations into uncomfortable territory. "The staff judged that asset valuation pressures were elevated. For public equities, price-to-earnings ratios stood at the upper end of their historical distribution," according to the minutes.

In other words, the Fed is watching the AI rally and wondering if it's sustainable or if we're inflating another bubble.

How Markets Responded

Wall Street trimmed earlier gains after digesting the Fed minutes, reflecting disappointment over diminished rate cut prospects. The Nasdaq 100 managed just a 0.1% gain to reach 24,520 points by 2:45 p.m. ET, while the broader S&P 500 ended virtually flat.

The Dow Jones dropped 130 points, down 0.3% to 45,960. Meanwhile, Nvidia Corp. (NVDA) bucked the trend, rising 1.7% as investors anticipated its earnings release after the closing bell.

Back to News

Fed Officials Can't Agree on What Comes Next, December Rate Cut Looking Unlikely

MarketDash Editorial Team
18 days ago
The Federal Reserve is deeply divided on interest rate policy, with officials split on whether to cut rates again in December. Market expectations have shifted dramatically, now pricing in a 66% chance rates stay put.

The Federal Reserve has a problem: its officials can't seem to agree on where interest rates should go next. That disagreement is now casting serious doubt on whether we'll see another rate cut in December, and markets are taking notice.

Minutes from the Federal Open Market Committee meeting on October 28-29 revealed a Fed that's more fractured than usual. Officials voted to lower the federal funds rate to 3.75%-4.00% at that meeting, but the consensus pretty much ended there. While many supported the October cut, some members admitted they could have been fine with keeping rates unchanged entirely.

December Cut? The Fed Can't Decide

Here's where things get interesting. Several Fed participants said another rate cut in December "could well be appropriate" if the economy develops as expected. That sounds promising, right? Not so fast. According to the minutes, "many participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for the rest of the year."

Translation: the Fed is genuinely split on this one. The only thing everyone agreed on was that monetary policy isn't following a predetermined path and will depend on incoming economic data.

Markets responded swiftly to the divided outlook. The CME FedWatch tool now shows a 66% probability that rates will hold steady at 3.75%-4.00% next month, with only a 34% chance of a 25-basis-point cut. That's a dramatic reversal from last week, when investors were pricing in a 65% chance of a cut. Even just before the minutes dropped, it was a coin flip at 50-50.

Part of the Fed's hesitation stems from inflation that refuses to behave. Officials noted that core inflation remains elevated, with disinflation in housing services more than offset by rising goods prices driven by tariff increases earlier this year. When one problem improves but another worsens, you're not really making progress.

AI Euphoria Has the Fed Worried

Beyond inflation concerns, Fed officials are growing anxious about financial market stability, particularly around the artificial intelligence boom. Several participants flagged the risk of a sharp, disorderly decline in stock prices if investors suddenly reassess AI-related prospects.

The minutes noted that broad equity indexes have continued climbing, propelled by large technology companies riding waves of AI optimism. That enthusiasm has pushed valuations into uncomfortable territory. "The staff judged that asset valuation pressures were elevated. For public equities, price-to-earnings ratios stood at the upper end of their historical distribution," according to the minutes.

In other words, the Fed is watching the AI rally and wondering if it's sustainable or if we're inflating another bubble.

How Markets Responded

Wall Street trimmed earlier gains after digesting the Fed minutes, reflecting disappointment over diminished rate cut prospects. The Nasdaq 100 managed just a 0.1% gain to reach 24,520 points by 2:45 p.m. ET, while the broader S&P 500 ended virtually flat.

The Dow Jones dropped 130 points, down 0.3% to 45,960. Meanwhile, Nvidia Corp. (NVDA) bucked the trend, rising 1.7% as investors anticipated its earnings release after the closing bell.