Fed Rate Cut Odds

November 12, 2025

It’s a well-known secret on Wall Street that the Federal Reserve has a favorite writer at the Wall Street Journal.  His name is Nick Timiraos.  When Nick writes an article about Fed policy, it’s a safe bet that Nick has gotten the info directly from the higher-ups at the Fed.  The Fed does this because it does not want to ‘shock’ the market.  Speaking through the WSJ is a way of gently releasing current views, without the shock value of a press release.

This morning, Nick had an interesting article.  It said the Fed is more divided about its next move than at any point in recent history.  There are strong voices advocating for both ‘cut’ and ‘no cut’ for the December meeting.   Why?  We are in a bout of stagflation – a slowing economy but with rising inflation.  From the Fed’s perspective, that’s the worst-case scenario.  The Fed’s job is to fight two monsters – inflation and unemployment.  But it only has one weapon — interest rates.  

Normally, only one ‘monster’ is awake at one time.  But in a stagflation scenario, both ‘monsters’ are causing trouble.  So the Fed has to pick which one to focus on.  And that is why there is disagreement at the Fed.

In the interest rate futures market, we can see the odds that the market is putting on a rate cut.  At the moment, it’s basically a coin toss.  The futures market assumes a 65% chance of a rate cut in December.  

In the Daily Interst, we talk a lot about the labor market.  But we don’t talk as much about inflation.  The chief economist at Apollo had an interesting chart in their report today.  See below.   It shows the percentage of items whose price is rising 3% or more.  You can see how this spiked in 2021-22, and now it’s creeping higher again.  THIS is what the Fed is worried about.