A December Interest Rate Cut is Now a Coin Toss

Key Takeaways

• In a major shift, the market odds of a December interest rate cut have dropped to 53% from 95% a month ago
• Fed officials are divided on the best path for policy, with some favoring more cuts and others preferring to leave rates unchanged for the time being.
• Shutdown-related disruptions to government labor market and inflation data may be complicating the picture.

The Federal Reserve’s next move once looked certain, but now Wall Street isn’t so sure.

The odds of the Fed making a quarter-point interest rate cut at its December meeting fell to 50% on Thursday, according to data from the CME FedWatch Tool. That’s an enormous change from just a few weeks earlier, when bond futures traders were pricing in a 95% chance of a cut.

The shift underscores a growing divide among Fed committee members, as well as the potential impact of disruptions to official data caused by the recent government shutdown. This week, White House officials indicated that some October labor market and inflation data may not be released at all.

“The voting Fed members were already split on whether more rates cuts are warranted, and the lack of consistent economic data can compound the dissention,” says Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth. The Fed ”will have less data than usual at their December 2025 meeting, which may complicate the decision-making process.”

The central bank reduced interest rates by a quarter point in October, but that decision was not unanimous. Two members voted for opposite policy moves—a rare outcome for a committee that generally reaches a consensus. One member favored a larger rate reduction, while the other voted for no change at all.

The crux of the divisions within the Federal Open Market Committee are the twin threats posed by inflation—which remains well above the Fed’s 2% target—and a job market that appeared to be weakening quickly over the summer months. More recently, the economic picture has been murkier. Some data, like consumer spending and corporate earnings, points toward robust growth, while other data suggests a slowdown.

In October, Fed Chair Jerome Powell acknowledged the “strongly differing views” among committee members and took care to push back on the market’s expectations of a December rate cut: “A further reduction in the policy rate ... is not a forgone conclusion—far from it."

Will the Fed Pause in December?

With less official to data to draw from and a mixed bag of economic signals, more FOMC members have endorsed the idea of standing pat.

“The downside risks to employment do not seem to have increased further since the summer,” Boston Fed President Susan Collins said in prepared remarks on Wednesday. “Absent evidence of a notable labor market deterioration, I would be hesitant to ease policy further, especially given the limited information on inflation due to the government shutdown.”

But a December pause comes with risks, too. “There has been a worrying package of US data recently,” Strategas chief economist Don Rissmiller wrote in a research note to clients on Thursday. He points to private data showing more than 150,000 job cuts in October, reports of declining apartment rents, slowing car sales, and consumer sentiment approaching a record low earlier this month. But right now, “we lack the official government data to validate the extent of this weakness,” Rissmiller wrote. “It’s understandable that monetary policymakers want to move prudently—but this leaves open the possibility that US labor market conditions weaken further in the fourth quarter."