If you hold Bitcoin or US stocks, this might be the week you need to hold your breath the most this year. (I'm not joking)

As of today, CME data shows that the probability of an interest rate cut next week is as high as 88%. It seems like a sure thing, but behind this number lies an absurd reality.

Due to the government shutdown, the Federal Reserve will meet next week in a 'data vacuum'. They cannot see the employment reports for October and November (which will be released on December 16)

We can understand that Powell is flying a plane without any navigation.

If you think that the current Bitcoin price of 86,000 is safe, you might not yet realize the consequences of 'a blind man riding a blind horse'.

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01 | What is the market betting on behind the 88% probability?

There is only one week left until the Federal Reserve's December meeting (December 9-10), and CME interest rate futures have already given a clear answer: the probability of a 25 basis point rate cut has reached 88%.

What does this number mean? It means the market almost 'believes' that the Federal Reserve will cut rates.

But if you look closely at the recent economic data, you will find a strange phenomenon:

- September non-farm employment: an increase of 119,000, exceeding expectations (but the August data was significantly revised down to -4,000, a rare negative value).

- August core PCE: year-on-year +2.9%, still above the Federal Reserve's 2% target.

- September unemployment rate: 4.4%, the highest since October 2021.

The employment data is mixed, inflation remains sticky, and the economic signals are unclear. In this situation, why is the market still willing to bet that the Federal Reserve will cut rates?

The biggest problem is: the Federal Reserve is about to make a decision in a 'data vacuum'.

With only September's old data in hand, what happened in October and November is completely unknown.

If the Federal Reserve really cuts rates, will the market rise? What if it doesn't?

In this article, I will use data to analyze the underlying logic of this 'rate cut gamble'.

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02 | What happened: Why is the market suddenly so certain about a rate cut?

Let's first look at the timeline.

As of now, the CME FedWatch tool shows that the probability of a 25 basis point rate cut by the Federal Reserve in December has reached 88%, and the market is nearly certain it will happen.

What triggered this change? There are three key signals.

Key Signal 1: The labor market is clearly cooling down.

Let's look at the recent employment data (September):

In September, non-farm employment increased by 119,000 (exceeding expectations, but the previous value was significantly revised down).
The unemployment rate in September rose to 4.4% (the highest since October 2021).
The labor participation rate is 62.4%, slightly up, but overall still shows weakness.

There is a subtle and dangerous aspect here:

This September data was delayed for nearly seven weeks due to the government shutdown, and it has been more than two months since then.

But the latest non-farm data for October and November will not be released until December 16.

The signal the market is reading is: the unemployment rate is rising, and the trend has already formed. If the Federal Reserve waits until it has precise data (December 16) to act, it might be too late.

Key Signal 2: Federal Reserve officials are collectively turning dovish.

In the past two weeks, several Federal Reserve officials have made suggestive remarks, seemingly paving the way for 'preventive rate cuts':

New York Fed President Williams: There is room for further adjustment in policy stance in the short term.

San Francisco Fed President Daly: The labor market is already weak enough to require supportive monetary policy.

Chicago Fed President Goolsbee: Expressed concern over the unclear inflation outlook but also hinted at the need to consider employment risks.

Goldman Sachs clearly stated in its report that a rate cut in December is 'almost a foregone conclusion', describing this cut as 'a done deal'.

Key Signal 3: The market's thirst for liquidity.

U.S. dollar index: On December 2, it reported 99.40, hovering below the 100 mark.

10-year U.S. Treasury yield: reported at 4.092%, jumping 7.3 basis points in a single day, showing anxious market sentiment.

Bitcoin: Retraced to around $86,000, clearly waiting for a clear 'liquidity signal'.

So, what is the market betting on?

It's not betting on 'how bad the economy is', but on 'the Federal Reserve's reluctance to take risks of recession'.

But the real suspense is: does the Federal Reserve really dare to cut rates without the latest data?

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03 | Threefold contradiction: Why is the Federal Reserve in an unprecedented dilemma?

This is what makes the December meeting most delicate. The Federal Reserve is currently facing a threefold contradiction, each of which is tricky.

Contradiction 1: Key data comes too late.

This is the biggest dilemma the Federal Reserve faces.

The non-farm data for October and November will not be released until December 16. The Federal Reserve's meeting is on December 9-10.

This means:

Information blind spot: Powell only has the latest employment data up to September, and three months have passed by the time of decision.

Potential risk: If the labor market has deteriorated in October and November, the Federal Reserve may act too slowly; if unexpectedly strong, a hasty rate cut may rekindle inflation.

What to watch this Friday?
This Friday will only release the delayed September PCE inflation data. This 'old data' has limited reference value and cannot fill the gap in employment.

Contradiction 2: Inflation has not yet fallen to the target.

Before inflation really returns to the 2% target, would continued rate cuts by the Federal Reserve be seen as 'too much liquidity too quickly'?

August core PCE year-on-year +2.9%. The market expects September core PCE (to be released on December 5) to also remain around 2.9%.

If inflation data remains stubborn, and the Federal Reserve does not see new evidence of labor market deterioration, do they still have sufficient reasons to cut rates?

Contradiction 3: Market expectations have already been 'overdrawn'.

If the Federal Reserve really cuts by 25 basis points, will the market rise?

Not necessarily.

CME futures show an 88% probability, meaning most traders have already positioned themselves for 'a rate cut'.

If the Federal Reserve cuts rates as expected, the market's first reaction may simply be: 'Okay, as expected, no surprises.'

Then, attention will quickly shift to Powell's press conference and the dot plot.

The real battleground is here: if the dot plot shows only two rate cuts (50 basis points) in 2026, significantly lower than the market's expectation of 3-4 cuts, the market may likely experience a disappointing sell-off.

So, how difficult is it for the Federal Reserve? If they cut rates, they're afraid of a rebound in inflation. If they don't cut, they're afraid of an economic recession.

The most troublesome part is that they must make a choice without the latest data.

This is why when 88% of the market bets on 'a rate cut is certain', it becomes the most dangerous signal.

Now we come to the most critical part: what will happen on December 9-10?

In the next article, we will attempt to simulate three possible outcomes of the Federal Reserve's blind flight.