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Market expectations for a December rate cut have shifted dramatically after Federal Reserve Chair Jerome Powell signaled a more cautious approach to monetary easing. According to the CME FedWatch Tool, the odds of a rate cut next month have fallen to 56%, down sharply from around 90% in early October. Meanwhile, the probability of no change has climbed to a record 41%, reflecting investors’ growing uncertainty about the Fed’s next move.
Powell’s latest remarks, delivered at a conference earlier this week, suggested that policymakers are not yet convinced inflation is firmly on track toward the 2% target. “Another cut is not a foregone conclusion—far from it,” he said, emphasizing that policy decisions remain “data-dependent” and that the central bank is “not on auto-pilot.”
The shift marks a significant recalibration in market sentiment. Just a few weeks ago, traders were nearly unanimous in expecting a December cut, betting that slowing growth and easing price pressures would prompt the Fed to begin a steady path of rate reductions. However, stronger-than-expected economic data and Powell’s cautious tone have tempered those expectations.
Treasury yields ticked higher following Powell’s comments, while U.S. equity markets pulled back modestly as investors priced in a longer hold on interest rates. Analysts now say the Fed may wait until early 2026 before embarking on a sustained easing cycle, depending on incoming inflation and employment figures.