Fed Rate Cut in October Is Almost Certain December Will Be the Real Test

The Federal Reserve is widely expected to lower interest rates by a quarter of a percentage point at next week’s meeting. This move continues the Fed’s shift from fighting inflation toward supporting the job market. Investors’ attention now turns to the December FOMC meeting, where the central question is whether the Fed will cut rates again or pause.

October Rate Cut Looks Confirmed

So far, Fed officials have focused on the October 28-29 meeting, leaving December largely off the table. Most policymakers support another 0.25 percentage point cut, which would lower the federal funds target range to 3.75%-4.00%.

• Governors Christopher Waller and Michelle Bowman have publicly backed a quarter-point cut.

• Stephen Miran, a Trump appointee, favors a larger 0.5 percentage point move.

• Boston Fed President Susan Collins called it “prudent” to ease slightly.

• Chair Jerome Powell’s recent comments have been widely interpreted as signaling approval for an October cut.

The market is aligned with this expectation. According to CME FedWatch, nearly 100% of investors anticipate a rate cut in October.

December Policy Is Less Clear

The situation for December is far more uncertain. The Fed’s September Summary of Economic Projections (SEP) shows a wide range of views among the 19 voting FOMC members:

• The median projection anticipates two or more cuts for the rest of the year following September’s reduction.

• Seven members expect no further cuts, and two anticipate just one more.

This dispersion means the December meeting remains a true policy battleground.

Economic data will play a key role. A federal government shutdown that began on October 1 has delayed critical reports from the Bureau of Labor Statistics and the Bureau of Economic Analysis. If agencies reopen in time, a wave of catch-up data on employment and inflation will likely arrive before the December 9-10 meeting, potentially reshaping the Fed’s judgment.

How Data Could Drive Policy

• A sharper slowdown in hiring would likely increase the odds of another rate cut.

• Persistent inflation, particularly if tariffs continue to push up prices, could argue for a pause.

Investors and economists are already tracking alternative indicators while official data is stalled. Private payroll trackers and state unemployment claims are filling in the gaps. The first official employment report after a shutdown resolution will be particularly influential. Tariff trends will also matter, as rising import costs could sustain inflation pressures.

What This Means for Investors

For those watching markets, several takeaways stand out:

1. October cut is nearly guaranteed, and the market has largely priced it in.

2. December is the critical meeting, with the potential to signal either continued easing or a pause.

3. Future rate moves depend on economic trends, especially employment growth and inflation.

4. Changes in Fed personnel next year could also influence policy. The rotation of regional Fed presidents and the expiration of Miran’s term in January may shift committee dynamics, with implications for early 2026 policy decisions.

In short, the October meeting is largely procedural, confirming what markets expect. The real test comes in December, when the Fed must weigh employment, inflation, and data gaps caused by the shutdown to decide whether to continue easing or hold rates steady. This meeting could set the tone for interest rate policy well into next year.