The Fed Ready to Cut Interest Rates in December? US Shutdown Could Be a Game Changer!
Market expectations for an interest rate cut by the Federal Reserve (The Fed) at its December meeting are growing, although uncertainty still looms. Based on data from CME FedWatch Tools, the probability of the Fed cutting its benchmark interest rate by 25 basis points is now around 63–67%, up from around 60% the previous week.
This rise in expectations is driven by signs of a slowdown in the United States economy, amidst inflation beginning to fall closer to its 2% target. However, the US government shutdown, which began on October 1, 2025, complicates the situation by delaying the release of several key data points, such as employment and regional inflation, thus leaving an incomplete picture of the national economy.
Several Federal Reserve officials expressed differing views ahead of the final meeting of the year.
Cleveland Fed President Beth Hammack emphasized the importance of caution before making major decisions.
"We should not rush to lower interest rates until we have full confidence that inflation is under control," she said this week.
Chicago Fed President Austan Goolsbee echoed this sentiment, believing the labor market remains strong enough to sustain high interest rates for longer.
"We need more evidence that price pressures are truly easing before we move toward policy easing," he said.
However, Fed Governor Mary Daly signaled a more open stance. She said the Fed must remain flexible in responding to incoming economic data, especially if the employment sector begins to show signs of weakness.
"We must be ready to act if the economy begins to cool more quickly than expected," Daly said.
Market surveys from Bloomberg and Reuters show that most economists still expect one 25 basis point rate cut before the end of the year. However, they emphasized that the timing of this cut depends heavily on the direction of inflation and the strength of the labor market.
A senior analyst at LSEG Refinitiv believes the chance of a December cut is now realistic, not a certainty.
"The market is beginning to realize that the Fed is not yet unanimous, and the delayed economic data due to the shutdown is clouding the policy picture," the LSEG report said Monday evening.
The US government shutdown, which has been ongoing since early October, has become a major obstacle. The release of many economic reports, including inflation and federal employment data, has delayed the analysis process for the Fed.
Fed Governor Lisa Cook acknowledged that this data delay makes decision-making more difficult.
"We don't have a full picture of the current economic conditions. This is not an easy time to make major decisions," she said at a forum last week.
With the chance of an interest rate cut hovering around 65%, the market remains optimistic that the Fed will begin easing monetary policy in December. However, differing internal views, inflation that is not yet fully under control, and data delays due to the government shutdown mean the Fed's decision will remain cautious.
Investors are now awaiting two key releases ahead of the policy meeting: core PCE inflation data and the November jobs report, which are believed to be key determinants of the direction of US monetary policy through the end of the year.
Source: Newsmaker.id
