WASHINGTON — The Federal Reserve is widely expected to cut interest rates for the third straight meeting this Wednesday, even though inflation is still lounging a full percentage point above target and several Fed officials are waving red flags like overcaffeinated parade marshals.
In what insiders are already calling a potential “hawkish cut,” Jerome Powell will apparently lower rates while simultaneously wagging a finger at markets that have been pricing in champagne and confetti for 2026.
Mortgage rates will dip, borrowers cheer, stock traders pop another bottle of the cheap stuff, and the bond market collectively mutters “here we go again.” Meanwhile, anyone hoping to retire on savings account interest quietly weeps into their 0.01% yield statement. The real winner: financial journalists, who get to reuse the phrase “cautious optimism” for the 47th consecutive month.
The betting shops — sorry, “economists” — currently give roughly 85% odds that the Fed will slice the federal funds rate by 25 basis points to 4.25%-4.50%. Translation: your adjustable-rate mortgage might get slightly less murderous next month.
Former Fed vice chair Alan Blinder called it “a hard call” but thinks they’ll cut anyway. He also floated the delightful possibility of a “hawkish cut,” which is Washington-speak for giving you a lollipop while threatening to ground you for the entire next year.
Picture the FOMC room: half the committee worried the economy is slowing, the other half worried inflation is throwing a rave it refuses to shut down. Somewhere in the middle, Jerome Powell practices his best “trust me, I’ve got this” smile in the mirror.
Boston’s Susan Collins and Kansas City’s Jeff Schmid have been out making the case that inflation is still too spicy for comfort. Chicago’s Austan Goolsbee warned against “frontloading” cuts, which is apparently economist for “don’t eat the whole cheesecake in one sitting.”
On the dovish side, New York Fed president John Williams basically winked at markets three weeks ago and said there’s “room for further adjustment.” Former Cleveland Fed president Loretta Mester translated that wink as “Jerome already signed the permission slip.”
Mester herself would personally dissent. She thinks the only reason to cut now is because the Fed dotted the line back in September and hates looking indecisive more than it hates sticky inflation.
The data, bless its heart, is arriving fashionably late thanks to the October-November government shutdown. The latest core PCE inflation reading — from September — clocked in at 2.8%. Officials expect it to ring in the new year at 3.1%, because nothing says “mission accomplished like inflation going the wrong direction.
The September jobs report bragged 119,000 new positions after August’s revised loss of 4,000, giving the labor market a personality more volatile than a reality-TV contestant. The Fed’s November Beige Book added that layoffs are up, hiring freezes are in, and — plot twist — artificial intelligence has started eating entry-level jobs faster than free donuts at the Monday meeting.
Looking ahead, everyone wants to know what the new dot plot will say about 2026. Will it be three more cuts? Two? Zero? One economist from Bank of America basically predicted two cuts next summer because “new Fed chair, new vibe,” which is the macroeconomic version of changing your hair after a breakup.
Wilmington Trust’s Luke Tilley is going full bear, forecasting three straight cuts because he thinks the labor market is circling the drain. He even blamed 154,000 federal workers who took buyouts for potentially pushing unemployment to 4.5%. Nothing screams “soft landing” like mass voluntary exodus from government payrolls.
At this point the Fed’s dual mandate feels less like a balanced breakfast and more like trying to pat your head and rub your stomach while riding a unicycle and reciting inflation data backward.
Leave a Reply