Markets have seen a notable pivot in tone over the past two
days. Until early this week, expectations for a December rate cut had faded
sharply, with CME FedWatch showing odds as low as 32% following resilient
payrolls and hawkish commentary from several Fed officials. However, the
combination of soft wage growth in the delayed September jobs report and a
dovish signal from New York Fed President John Williams earlier this morning
has nudged sentiment back toward easing. Williams described policy as “modestly
restrictive” and said there is “room for a further adjustment in the near
term,” a remark widely interpreted as opening the door to a cut.
Fed minutes released November 19 confirmed a divided
committee: “several” participants could support a December cut if conditions
evolve as expected, while “many” prefer holding steady. Chair Powell reiterated
that a cut is “not a foregone conclusion,” but didn’t rule it out. Market
pricing now reflects this shift, with December cut odds climbing to nearly 70%
from 36% earlier in the week. The narrative has moved from near-certainty of a
pause to cautious dovishness, though persistent inflation near 3% and hawkish
voices like Hammack and Bostic remain counterweights. The Rate team has
been tracking the messaging and according to our own Vince Zenner, “Tallying
all fed talk, looks like (a rate) cut, but with 4 descents” at the Fed’s
December meeting.
For risk assets, this evolving stance has reinforced a
supportive backdrop. Treasury yields have eased slightly, UMBS are up a few
ticks, and equities extended gains as investors bet the Fed will lean toward
accommodation in early 2026—even if December remains a coin toss.
