Powell to 'temper bets' for January cut amid Fed civil war

The longest federal closure in American history means that Fed officials have been flying somewhat blind for a couple of months now.

While the government shutdown is, of course, now behind us, we’ve so far only received dribs and drabs of the delayed data and some of it, notably the October nonfarm payrolls and inflation figures, won’t be released at all as standalone reports.

We would argue that the data that we have received has not been conclusively supportive of a December cut, but it has also not been enough to rule one out either.

The jobs market appears stuck in a “low-hire, low-fire” state. Net job creation has slowed significantly and, even if employment growth remains around the breakeven rate, we’re not looking at levels that are consistent with a robust and expanding economy.

On the meeting outcome

“Right off the bat, we do not expect a unanimous vote, with two or three of the hawks to potentially opt for no change - expect this disunity to be an increasingly common occurrence from now on. Chair Powell will also likely again acknowledge the “wide range” of “strongly differing” views in the FOMC.

We expect him to temper bets for a January cut, while saying again that future rate reductions are not guaranteed. Any suggestion from Powell that the decision was a close call would be seen by market participants as particularly hawkish.

The updated dot plot of rate projections will, as always, be key for the direction of the dollar, as this will help guide market expectations for rates in 2026. We think that this is also likely to show signs of division within the FOMC.

With data sparse and inflation risks elevated, we expect the dots to err on the hawkish side, with the median dot to show just one cut next year and another in 2027 - as it did in September, albeit with a wider disparity of views. The updated macroeconomic forecasts are unlikely to undergo meaningful changes.