BIG NUMBER | 90%+ | December Rate Cut Seems All But Assured

Expectations for a December rate cut plummeted over the last few weeks—from a fully-priced 100% before the Fed’s October rate cut to less than 30% by mid-November.

Doubt started seeping in after one Fed member voted to leave rates unchanged in October, and because of messaging from Fed Chair Powell that created uncertainty about the likelihood of another cut this year. The almost complete lack of economic data during and in the immediate aftermath of the six-week government shutdown further amped up investors’ confusion about the Fed’s next move. Meanwhile, markets sold off as the odds of a rate cut fell, with the tech-heavy Nasdaq-100 falling nearly 9% from peak to trough.

Today, the odds of a rate cut are back above 90%—which means that by this time next week, the federal funds rate should be ranging between 3.50% and 3.75%.

Currently, there are conflicting opinions among many of the Fed’s members about the need for additional rate cuts in 2026. However, a few key developments may impact the Fed’s decisions next year:

• Chair Powell’s term ends in May, and a new Chair will take over, along with some new voting members who may view economic conditions differently than the current members.
• The state of the economy will become clearer as we move further away from the fog of the government shutdown.
• The Fed has ended its pandemic-era policy of shrinking its balance sheet, potentially impacting the slope of the yield curve and the level of long-term interest rates.

The upshot: The Fed could surprise investors during 2026, and we will be watching for emerging opportunities and risks as Fed policy develops.

By Zachary Hill, CFA

Originally published December 2, 2025

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The Market-Implied Probability was measured using Bloomberg’s WIRP function, which provides market-implied probabilities of future central bank policy rate changes, based on pricing data from underlying financial instruments like Fed Fund futures and Overnight Index Swaps (OIS).

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