Markets Predict Fed Pivot, Central Bank Remains Silent

Financial markets appear to be anticipating a rate cut from the Federal Reserve as soon as December, while the Fed itself remains cautious and divided on the matter. This potential mismatch between market expectations and the Fed's stance could lead to disruptions in macroeconomic balances and negatively impact risk assets.

Markets Bet on an Imminent Rate Cut

A widening gap exists between the Federal Reserve and market expectations. Current figures indicate that traders assign a 67% probability of a 25 basis point rate cut at the Fed meeting scheduled for December 9 and 10.

This anticipation has escalated rapidly, even in the absence of any official statement confirming an imminent shift in monetary policy. This change in market sentiment occurred after a week marked by significant volatility, partly fueled by the release of new inflation data.

In contrast, the probability of the Fed holding rates steady remains at 32%, while the chances of a more aggressive adjustment, such as a 50 basis point cut, are very low, around 2%. The probability of a rate hike is currently negligible.

This shift in sentiment is underpinned by a fundamental trend, confirmed by Polymarket’s historical data. The aggregated chart illustrates a consistent rise in cut expectations since October, followed by a sharp increase this week, suggesting a strategic repositioning by investors. They now appear convinced that the Fed is poised to make a significant policy turn. According to consulted data:

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  The probability of a 25 basis point cut has surged from moderate levels to 67% in just a few days.
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  The scenario of maintaining the status quo has fallen to 32%, indicating a weakening of the prevailing sentiment from recent weeks.
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  The likelihood of a rate hike is now minimal, with less than a 1% probability.

This dynamic reflects a collective change in investor sentiment, with market participants now betting on a monetary pivot before the end of the year, diverging from the measured tone of the Fed's last statement.

This divergence between on-chain market data and the central bank's official communication is fostering a form of friction that could become more pronounced leading up to the decision. Traders seem prepared to act ahead of the Fed, potentially risking disappointment if their short-term expectations are not validated.

Susan Collins Calls for Restraint

In response to this growing market optimism, official voices from the Federal Reserve have not, at this stage, endorsed the scenario of immediate monetary easing. Susan Collins, president of the Boston Fed, has articulated this cautious stance clearly in her recent remarks.

Collins believes that current monetary policy is at an appropriate level and that any future decisions must be guided by concrete evidence. She stated, "We need more data before supporting a new decision," and remains undecided about her vote at the December 9-10 meeting. She also indicated that she would not rule out opposing a rate cut if she deemed it premature.

Other Fed members have echoed similar sentiments, emphasizing the necessity of thoroughly analyzing mixed signals from the U.S. economy, which include both slowing inflation and a weakening labor market.

Collins highlighted these uncertainties, explaining that the risks associated with inflation and the current labor market situation require a more nuanced assessment before justifying a new monetary shift. This position reveals a growing internal division within the Fed's monetary policy committee, contrasting with the more consensual nature of previous decisions.

The tension between institutional caution and market exuberance is palpable. The Federal Reserve's actions and statements continue to influence hopes for a potential rebound in assets like Bitcoin, with a December rate cut now seen as a possible catalyst for risk assets.