A Not-So-Foregone Conclusion: The Fed Cuts, but December in Limbo

Alexa Sinsheimer <sup>AC</sup> and Max Motz

The Federal Reserve lowered its benchmark interest rate by a quarter of a percentage point on Wednesday afternoon, bringing the target range to 3.75 to 4.00 percent. The move was widely expected, with fed funds futures pricing in roughly 98% odds of a 25 basis point cut ahead of today’s announcement. 

The vote was not unanimous. Governor Stephen Miran dissented in favor of a larger 50 basis point cut, while Kansas City Fed President Jeffrey Schmid preferred to hold rates steady.

Disagreement within the Fed was not limited to the outcome of this month’s meeting, with Powell noting that “there were strongly differing views about how to proceed in December.”

Market expectations for another rate cut this year fell from 95% to 69% after Powell remarked that “a further reduction of the policy rate at the December meeting is not a foregone conclusion.” The S&P 500 briefly dipped on the comment but recovered as Powell pointed to encouraging inflation developments, including limited price effects from new tariffs so far.

The Fed now finds itself at a critical crossroads, caught between internal divisions over how much further to ease this year and a growing data blackout caused by the government shutdown. 

The two recent cuts, characterized as “risk management” moves, were pursued after the Fed judged that downside risks to the labor market had become more pronounced. Crucially, cuts take time to filter through the economy, which Powell pointed out to reporters, saying “policy works with a lag, we know that, so the effects of what we’ve done are still moving through the economy.”

That uncertainty has given rise to what Powell called “a growing chorus” within the Committee that it may be appropriate to pause and assess before taking further action. The timing is especially delicate. With the shutdown halting key releases, policymakers are relying on a thinner stream of information to gauge the economy’s health. Powell noted that the Fed still has access to “state-level jobless claims, job openings, survey data, and the Beige Book,” and acknowledged that “if there were a significant or material change in the economy, I think we would pick that up through this,” but he cautioned that the limited data could justify a more careful approach, adding that “if there is a high level of uncertainty, then that could be an argument in favor of caution about moving.”

Below, we’ve compiled a table of some key labor market indicators, the latest release date and headline value, and possible impacts from the shutdown. 

Why the Employment Report’s Absence is Especially Important

With the Government shutdown looming with no end in sight, the information and market reaction from some of the most important indicators remains in limbo. Historically the Jobs report has had a significant impact on both the S&P 500 and rate cut expectations, especially in 2025. Rate cut expectations generally increase when BLS Payrolls data is below expectations (soft), as the Fed is more likely to cut to support the labor market, and decreases when BLS Payrolls data is above expectations (hot), as the Fed would prioritize keeping inflation in check in a strong labor market.

The relationship between the Jobs Report and the S&P 500 however is a little more nuanced. Traders' response to the employment report has fluctuated based on whether they view inflation risk or recession risk as a bigger issue during the period in which the report is observed:

  • In periods where rate cuts are uncertain and employment is sturdy (such as earlier this year), Traders are more likely to buy when the labor market release is soft and sell when the labor market release is hot due to how it affects the likelihood of rate cuts in the near future.
  • In periods where rate cuts are more certain, employment is weakening, and there is fear of a potential recession (such as the period between May 2025 and the present), traders have had some concern over the state of the economy, leading to rallies on in-line and hotter employment numbers and declines on weaker employment numbers

See you in December, Fed Watchers! 

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Alexa Sinsheimer <sup>AC</sup> and Max Motz
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