In just one month, Wall Street’s certainty about Federal Reserve policy has evaporated into chaos. The probability of a December rate cut plummeted from 97% in mid-October to just 22%, according to economists polled by FactSet.
Then, after dovish comments from New York Fed President John Williams on Friday, futures markets whipsawed again, pricing in over 75% odds of a cut—a stunning 50-percentage-point swing in a single day.
Welcome to the Fed’s December dilemma, where the path forward has become a coin flip that’s rattling markets during the most thinly traded week of the year.
The Data Blackout That Changed Everything
The shift from certainty to confusion stems from an unprecedented crisis: the longest government shutdown in U.S. history.
The 43-day shutdown from October 1 to November 13 created an information vacuum at precisely the wrong moment, with the Bureau of Labor Statistics unable to conduct critical economic surveys.
Two monthly jobs reports were missed entirely during the shutdown. The October report will likely never be published because the household survey essential for calculating unemployment wasn’t conducted and can’t be retroactively gathered.
This means policymakers will make their final 2025 decision without standard labor market data, relying instead on delayed figures and high-frequency indicators like jobless claims.
The delayed September jobs report, finally released November 20, showed 119,000 jobs added—more than double expectations—but hardly definitive given the massive data gaps.
Chair Powell acknowledged the bind: without complete information, the Fed is essentially making trillion-dollar decisions about the world’s largest economy based on educated guesses.
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One Speech Changes Everything
John Williams, president of the New York Fed and vice chairman of the FOMC, dramatically shifted expectations with a Friday speech in Santiago, Chile.
He said downside risks to employment have increased while upside risks to inflation have eased, and that monetary policy remains “modestly restrictive” with “room for further adjustment in the near term.”
Markets erupted. Stocks surged, Treasury yields fell, and rate cut odds jumped from 35% to over 70% in hours. Williams carries special weight as part of an unofficial Fed leadership “troika” with Chair Jerome Powell and Vice Chair Philip Jefferson.
But Williams doesn’t speak for a unified committee.
A Deeply Divided Fed
The October FOMC meeting revealed extraordinary divisions. The committee split three ways: Stephen Miran wanted a larger half-point cut, Jeffrey Schmid opposed any cut, while the majority approved a quarter-point reduction.
Having members vote in opposite directions is rare and signals deep philosophical disagreements.
The hawk-dove split has intensified. Dallas Fed President Lorie Logan said she would have opposed even October’s cut, stating she’d find it “difficult to cut rates again in December unless there is clear evidence inflation will fall faster.”
Boston Fed President Susan Collins, previously open to cuts, also turned cautious, noting she’d be “hesitant to ease policy further” given limited inflation data.
Meanwhile, Fed minutes showed members deeply divided on inflation, which sits at 3% versus the 2% target.
Several members were comfortable with current levels, while “many participants remarked that overall inflation had been above target for some time and had shown little sign of returning sustainably to the 2% objective.”
Adding complexity, Williams noted that trade tariffs have contributed about half to three-quarters of a percentage point to current inflation, though he doesn’t see spillover effects. Without complete data, the Fed can’t determine if elevated inflation is temporary or signals deeper pressures.
This Week’s Critical Data
The Thanksgiving calendar is light but crucial. Tuesday brings Consumer Confidence and housing data. Wednesday delivers the second Q3 GDP estimate, PCE price index—the Fed’s preferred inflation gauge—and durable goods orders.
With markets closing at 1:00 PM Friday and thin holiday liquidity, any data surprises could trigger exaggerated moves. The problem: algorithmic trading and reduced oversight during the holiday mean volatility could spike on relatively minor news.
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Three Scenarios for December
Scenario 1: 25bp Cut (70% probability) – The dovish case that labor market softening warrants continued easing and inflation will moderate as tariff effects fade. Williams’ speech suggests Fed leadership may lean this way. Markets would likely rally.
Scenario 2: Hold Steady (30% probability) – The hawkish argument that with 3% inflation and relatively low unemployment, there’s no urgency to cut. Better to wait for complete January data than risk a policy error. This would trigger stock selloffs and a stronger dollar.
Scenario 3: Larger Cut (<5% probability) – The outlier where conditions deteriorate sharply or the Fed provides unusually clear 2026 guidance. Given current divisions, this seems unlikely.
Market Implications: Uncertainty as the Enemy
The whipsaw in expectations is creating real damage. Technology stocks, sensitive to rate changes, are down 7% from peaks.
Bond yields have gyrated wildly. Bitcoin crashed 25-30% in November, partly reflecting flight from uncertainty. When even Fed officials can’t agree on policy, all risk assets suffer.
Political pressure adds another layer. President Trump has repeatedly criticized Powell, dubbing him “Too Late Powell” and blaming him for elevated mortgage rates.
The White House has pushed aggressively for cuts throughout 2025, and a December pause would likely infuriate the administration. But the Fed’s independence is foundational to its credibility.
The Bigger Picture: Flying Blind
The Fed’s struggle reflects broader dysfunction. When political impasses create information vacuums, policymakers can’t make informed decisions, markets can’t price assets accurately, and businesses can’t plan confidently.
As markets close early Friday, traders face a troubling reality: the Federal Reserve, for all its power, can’t fix an economy it can’t accurately measure.
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Whatever the December 9-10 committee decides, a significant faction will likely dissent strongly. The vote breakdown may be as informative as the decision itself.
For investors navigating this Thanksgiving week, brace for continued volatility. Every data release carries outsized weight, every Fed speech moves markets violently, and the uncertainty premium won’t dissipate until December 10.
In the absence of certainty, markets will remain on edge well into December—and possibly beyond.
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