The Fed signals a rate cut in December: Powell's speech today marks a decisive turning point

In recent days, financial markets have experienced a sudden shift contrary to expectations about the upcoming moves of the Federal Reserve. Just a few weeks ago, traders doubted the possibility of a rate cut at the Federal Open Market Committee (FOMC) meeting scheduled for December 10, but today the probabilities have risen above 70%. This scenario reversal is not accidental but the direct result of strategic statements from the top officials of the American central bank.

The Position of the “Big Three” of the Fed: When Silence Speaks Louder Than Words

The communication from the Federal Reserve—especially from top leaders—follows precise and carefully calibrated rules. Chairman Powell, Vice Chairman Jefferson, and the President of the Federal Reserve Bank of New York Williams represent the three decision-making pillars of the institution, and their public messages are never improvised.

Last Friday, Williams publicly stated that he believes there is “still room for further adjustments to rates in the short term.” This seemingly neutral statement triggered an immediate market reaction: expectations of a rate cut in December jumped from nearly 40% to over 70% within a few hours.

Krishna Guha, a monetary policy analyst at Evercore ISI, explained the mechanism: “Although the expression is slightly vague, the most direct interpretation is that it refers to the upcoming meeting. When a member of the three main Fed leaders sends a signal on current policy issues, it almost always reflects the approval of Chairman Powell; acting otherwise would constitute a serious violation of institutional protocol.”

Economists now agree that Powell, Williams, and Governor Waller form a united front on the need to cut rates. Tom Porcelli, Chief Economist at Wells Fargo, confirmed: “The deterioration we observe in the labor market provides a solid and reasonable basis to proceed with the December cut.” Josh Hirt of Vanguard described this coalition as “a very hard consensus to break.”

Data Driving Easing: Unemployment and Market Fragility

The unemployment rate reached 4.4% in September, the highest in the last four years, according to official data released after the government shutdown ended. This indicator is the pivot around which the discussion on the need for central bank intervention revolves.

Matthew Luzzetti of Deutsche Bank characterized the labor market as “still precarious,” emphasizing how the traditional model of “high hiring and low layoffs” is showing signs of weakening. The simultaneous strength of consumer spending creates a paradox that divides Fed officials: how can weak employment coexist with vigorous household purchases?

Ethan Harris, former Chief Economist at BofA Securities, pointed out that the economy is showing increasingly convincing signs of weakening, a situation forcing the central bank to intervene. Pressures on rate-sensitive sectors, such as housing, remain high despite the strength of global financial markets.

Internal Fractures: Inflation, Stagflation, and the Unsolvable Dilemma

Despite emerging consensus, significant divergences persist within the Federal Reserve. Boston Fed President Collins expressed concern about inflation in an interview with CNBC, while Dallas Fed President Logan took an even more cautious stance, even doubting the two previous rate cuts. Collins has voting rights at the FOMC this year; Logan will acquire them in 2026.

Harris identifies the core of the internal conflict: the Fed faces what he called an “impossible challenge.” The contemporary economy exhibits characteristics of stagflation—simultaneous persistence of high inflation and rising unemployment—a combination for which there is no single, universally accepted monetary policy response.

The first point of divergence concerns the nature of current monetary policy. Officials worried about inflation argue that, since capital markets remain robust, policy is already accommodative. Supporters of a cut counter by noting that financial conditions in critical sectors like housing still reveal significant tensions.

The second contrasting element concerns the interpretation of inflation data. Supporters of the cut, including Williams, argue that excluding the temporary effects of tariffs, inflation would be lower. Hawks respond that sectors not directly affected by trade tariffs are already showing signs of accelerating prices.

The “Insurance Cut” Strategy and the Information Void

Former Cleveland Fed President Mester anticipates that Powell might use the December 10 press conference to frame this decision as an “insurance cut”—a preventive measure after which the Fed will carefully observe how the economy reacts before considering further moves.

This strategic approach becomes even more relevant given the exceptional context: the record-length government shutdown caused a significant delay in the availability of recent employment and inflation data. The December 10 decision will therefore be made under conditions of partial information, increasing the relative weight of qualitative signals and strategic assessments over quantitative data.

Hirt also emphasizes the importance of the message sent by hawks within the Fed. Statements from officials opposed to a December cut send a critical signal to markets: the central bank will not cut rates “just to cut,” preventing bond markets from embedding even higher inflation expectations. “This limits the potential negative consequences of a rate reduction in a context of persistent inflation and a labor market that is not clearly in trouble,” Hirt concludes.

The outcome of the vote will thus be interesting not only for the result but also for the dynamics that will emerge: likely a majority in favor of the cut, but with a vocal minority aware of inflation risks, reflecting the genuine complexity of today’s economic situation.