Fed's Data Setbacks and Internal Disagreements Dash Expectations for a December Rate Reduction

Market data now shows that the likelihood of the Federal Reserve reducing interest rates by 25 basis points in December has dropped sharply to 33%, a significant shift from the previous near-certainty. This change comes after the October nonfarm payrolls report was canceled due to the government shutdown, and the November data release was postponed until after the Fed's last policy meeting of 2025. As a result, traders on the

are now assigning only a 33% probability to a rate cut, down from 50% the previous day and a dramatic decrease from the 100% certainty seen in early November .

The Federal Reserve's upcoming decision is complicated by the absence of up-to-date labor market figures, as the Bureau of Labor Statistics (BLS) has confirmed that last week's September jobs report will be the final major data point available before the December meeting. The September report indicated 119,000 new jobs, surpassing forecasts, but the unemployment rate climbed to 4.4%, its highest level since October 2021

. Although job creation exceeded expectations, the rise in unemployment has sparked worries about the economy's underlying strength. "All those numbers suggest an economy that's still hanging in there," commented former Fed Vice Chairman Roger Ferguson, highlighting that labor force participation and wage growth remain robust .

Internal disagreements within the Fed have added to the uncertainty. The minutes from the October meeting, released last week, revealed significant differences among policymakers regarding further monetary easing. While some officials supported a rate cut, "many participants suggested that it would likely be appropriate to keep the target range unchanged for the rest of the year," as stated in the minutes

. This division has increased market uncertainty, with investors now expecting a higher bar for any policy changes.

The decline in expectations for rate cuts has led to a faster selloff in risk assets.

, which was trading close to $110,000 at the end of October, has dropped to $89,000, and crypto-related stocks such as Circle (CRCL) have lost nearly half their value . The Crypto Fear & Greed Index, which measures investor sentiment, has fallen to 15, indicating "extreme fear." At the same time, the U.S. dollar has gained strength against both the euro and yen, surpassing its 200-day moving average as traders anticipate a longer period of tight monetary policy .

However, Kay Haigh of Goldman Sachs believes a December rate cut is still possible if the Fed focuses on the rising unemployment rate, now at 4.4%

. The firm points out that stricter immigration policies and a shrinking labor force could keep job markets tight even if overall hiring slows. Still, with the November jobs report delayed until after the December meeting, the Fed will lack current data to inform its decision, making a pause more likely.

The Fed's final meeting of 2025, set for December 10–12, is expected to center on maintaining stability in a fragile economic environment. With markets now estimating a 67% chance that rates will remain unchanged, the central bank faces a crucial challenge in balancing inflation management with supporting growth amid incomplete information.