FOMC rate decision is the clear centerpiece of today’s sessions, with markets fully convinced the Fed will deliver a 25bps cut to 3.50–3.75%. The probability of anything else is effectively zero, and policymakers have little incentive to risk unsettling sentiment by defying expectations at this stage of the cycle. The real debate is not about tonight’s move, but about what the Committee signals for 2026 and the broader path ahead.
Turning back to September’s meeting, the median dot plot penciled in only one additional cut in 2026, taking the policy rate to 3.25–3.50%. A key question now is whether the Fed keeps that projection unchanged. While, that is the most likely outcome, but the dot plot itself will not reveal when that single cut is expected—whether early in the year or toward year-end. That ambiguity will shape how markets interpret tonight’s guidance.
This leads to the second major issue: whether the Fed is effectively entering a pause after today’s cut. One of the first clues will come from the vote split. A tight or divided vote would reinforce the view that the bar for further reductions is rising, and that January is likely to be another hold. The follow-through will come from the statement and Chair Jerome Powell’s press conference, where the tone will be scrutinized closely.
While all of this will ultimately be re-priced once next week’s November CPI and NFP data arrive, tonight’s communication is still critical for setting the base case for early-2026 policy expectations. Markets will be particularly sensitive to any shift in how the Fed describes labor market resilience, wage cooling, and tariff-related inflation risks.
In terms of market reaction, the most important gauge is pricing for a March rate cut. Fed fund futures currently assign roughly a 40% probability of a 25bps cut in March and about a 60% probability of a hold. Any move in those probabilities—driven by dots, tone, or vote split—will dictate how equities, yields, and Dollar respond.
In stocks, a key to watch is 477560.29 support in DOW. Firm break there should indicate rejection by 48431.47 high, and the corrective pattern from there should be starting a third leg. In this case, deeper pullback would be seen to 55 D EMA (now at 46797.21) and below. Effectively, the Santa rally is killed in this case before it starts. But of course, decisive break of 48431.57 will bring another record run through to year-end.
Fed’s Schmid: Policy not overly restrictive before rate cut
Kansas City Fed President Jeffrey Schmid explained his dissent at this week’s FOMC meeting, where he voted to keep rates unchanged. He said in a statement his assessment of the economy has not shifted meaningfully since October, citing “continued momentum” in activity and inflation that remains above comfort levels.
Schmid described inflation as “too high” and the labor market as cooling but still “largely in balance.” In that context, his preference is to maintain monetary policy in a “modestly restrictive” setting rather than ease prematurely.
Addressing debate around policy restrictiveness, Schmid downplayed reliance on theoretical estimates of the neutral rate, calling r* an academic concept without a real-world equivalent. Instead, he said policy should be judged by “how the economy actually evolves”. From both incoming data and business contacts, he sees an economy that is “showing momentum and inflation that is too hot”, suggesting that policy is “not overly restrictive”.
Full statement of Fed’s Schmid here.