It seems like yesterday that I was not only writing, but also appearing on the Market Insights Podcast, commenting on the Federal Reserve’s decision to cut rates in October, with the obvious question being if a third consecutive cut would follow in December.
While it would be fair to say that markets anticipate rate cuts to come, the speed at which their easing cycle would continue was, of course, the $1,000,000 question.
And by most accounts, the answer was a resounding yes, with many expecting a third 25 basis point cut would conclude 2025, leaving the target rate at 3.50-3.75%, its lowest level since late 2022.
Since then, however, a growing hawkish sentiment emerged from the Federal Reserve, with odds of a December rate cut falling to less than ~50%, in line with policymaker commentary.
At the time, Powell had previously cautioned markets on the assumption that cuts would continue thick and fast, and it seemed the markets were starting to believe that the December decision would be his chance to stand his ground, especially with a handsome beat to consensus for September’s NFP.
In hindsight, however, this was the peak of the hawkish narrative, with what’s happened since signifying one of the most contested periods of monetary policy stance that I can remember.
What started with Fed Williams, who made some dovish commentary speaking at a central bank conference in Chile, has continued with further dovish remarks from Daly and Waller, who have both cited the labour market as a larger priority than inflation, at least for now, with the latter generally trending lower.
