Fed Minutes Dampen Rate Cut Hopes, Shaking Investor Confidence
November FOMC meeting summary reveals deep divisions among officials, signaling monetary policy may remain restrictive heading into 2026.
The Federal Reserve cast a shadow over investor hopes for a year-end interest rate cut, with newly released minutes from its November meeting revealing significant opposition among policymakers to further monetary easing in the near term.
The detailed account of the Federal Open Market Committee's (FOMC) last gathering showed that many central bankers felt it would be appropriate to hold rates steady for the remainder of the year. The hawkish sentiment, which points to a continued restrictive policy to combat inflation, sent ripples through financial markets and recalibrated expectations for the Fed's December decision.
According to the summary, officials expressed “strongly differing views” on the path forward. While some participants pointed to cooling inflation and employment data as justification for potential cuts, others argued that progress on bringing inflation back to the Fed's 2% target had stalled, warranting a more cautious, data-dependent approach. This internal division underscores the uncertainty facing the central bank as it navigates a complex economic landscape.
The market reaction was swift and clear. U.S. Treasury yields, which are highly sensitive to interest rate expectations, pushed higher. The 2-year Treasury note yield, a key barometer of Fed policy, ticked up following the release, while the benchmark 10-year yield also saw a modest increase. This move in the bond market reflects a decisive shift in sentiment; the probability of a December rate cut, as measured by the CME FedWatch tool, fell sharply from over 90% a month ago to less than 50% following the news.
Equity markets, which had been enjoying a recent rally, met the news with apprehension. While strong earnings from tech giant Nvidia initially provided a lift to futures, the minutes injected a “gloomy note for equity bulls,” as reported by MarketPulse. The “higher for longer” interest rate narrative, which dominated market discourse for much of the past year, appears to be regaining traction, creating headwinds for stocks by keeping borrowing costs elevated for corporations and consumers alike.
Adding to the uncertainty, a delay in the release of key government jobs data for October and November means the Fed will be working with an incomplete picture of the labor market ahead of its critical December meeting. Some analysts believe this lack of comprehensive data will make officials even more hesitant to cut rates. “[The minutes] cast doubt on a December rate cut,” noted a report from Investopedia, highlighting the committee's divided stance.
Not all market participants are convinced that a rate cut is off the table. Economists at Goldman Sachs, for instance, are maintaining their forecast for a December cut, citing cooling employment trends and inflation moving closer to the central bank's target. However, the tone of the November minutes suggests that the bar for such a move is high, with the committee seemingly unified in its commitment to preventing a premature policy pivot that could reignite inflationary pressures.
As 2025 draws to a close, investors are left parsing every piece of incoming economic data, searching for clues on which faction of the divided Fed will ultimately steer monetary policy. For now, the prevailing view is one of caution, with the central bank signaling it is in no rush to declare victory over inflation.