As the US government shutdown continues, the Federal Reserve cut interest rates by 25 basis points in October in the absence of key economic data. With the end of the lockdown, all eyes are now on the FED's final interest rate decision for 2025, which is scheduled for December. Wall Street Journal reporter Nick Timiraos, widely recognized as a FED spokesperson due to his insider access, has shared his predictions for this crucial December interest rate decision.
Major Disagreement Among Fed Members Emerges
Timiraos reported that there is a deepening disagreement within the Federal Reserve regarding the December interest rate cut. An unusual conflict has emerged between the hawkish and dovish figures of the Fed. The prominent journalist stated that during Jerome Powell's nearly eight-year tenure as Chair, there had never been such a significant level of separation in opinion among Fed members.
“There is a rarely seen division among Fed members. Following the second interest rate cut at the end of October, the rhetoric of hawkish members has become even harsher. The hawks now believe that further rate cuts are risky.”
Some Fed officials are advocating for a rate cut, citing slowing inflation and the limited economic impact of tariffs. Conversely, others argue against a cut, pointing to sticky inflation and the ongoing effects of tariffs as reasons to maintain current rates. According to Timiraos, the US government shutdown and the resulting disruption in the release of important economic data have further exacerbated this division among members.
Nick Timiraos recently stated that Powell's comment at his last press conference, "A rate cut in December is not a certainty," was not primarily a message intended for the market. Instead, Timiraos believes Powell's statement was a deliberate communication aimed at explaining the internal division among FED members.
With interest rates currently hovering around 3.75%-4%, markets are still pricing in a potential rate cut amid this rare hawk-dove clash. According to the Fed Watch Tool, there is a 63.4% probability priced in for a 25 basis point rate cut, while the probability of holding rates steady stands at 36.6%.