Fed Navigates Data Blackout in Run-Up to High-Stakes December Meeting
Markets cling to hopes of a dovish pivot as a historic government shutdown leaves policymakers and investors parsing conflicting signals.
The Federal Reserve is heading into its critical December policy meeting navigating a dense fog of economic uncertainty, forcing officials to weigh a potential policy pivot amidst a significant lack of reliable data. A historic 43-day government shutdown has created an "information blackout," leaving investors and policymakers alike struggling to gauge the true state of the U.S. economy.
Markets have been whipsawed by the ambiguity. Hopes for a "dovish hold"—where the central bank would keep rates steady while signaling future cuts—remain persistent. Yet, the probability of a rate cut at the December meeting has tumbled from a near-certainty of over 90% just a month ago to what many now see as a coin-toss, with market-implied odds falling to between 40% and 53% in mid-November trading.
The primary cause of the uncertainty is the prolonged government shutdown that ended in mid-November, which severely delayed the release of crucial economic reports. Key metrics on inflation, employment, and GDP that typically guide the Federal Open Market Committee's (FOMC) decisions are only now beginning to trickle out, forcing officials to rely on incomplete or outdated information. This has led to sharp, sudden market moves as each piece of delayed data is released.
Nowhere was this volatility more evident than in the S&P 500's performance last Thursday. The index initially rallied before plunging nearly 2.5% in just 80 minutes after the delayed September jobs report showed a stronger-than-expected reading. The robust number challenged the narrative of a cooling economy, immediately dampening expectations for an imminent dovish turn from the Fed.
Wall Street's top economists are deeply divided on the path forward, reflecting the broader confusion. According to recent forecasts, Goldman Sachs anticipates the Fed will begin cutting rates in the first half of 2026, while Morgan Stanley, which had previously called for a December cut, has also pushed its forecast into the new year. Meanwhile, J.P. Morgan Global Research sees a more conservative path, predicting just one rate cut in 2026 following potential reductions in late 2025.
Underpinning the Fed's cautious stance are persistent inflation concerns. While the last consumer price index reading for September showed inflation at 3% year-over-year, some analysts worry that a premature easing of monetary policy could reignite price pressures. Analysts at Schroders have warned that Fed cuts could fire up inflation again in 2026, complicating the central bank's dual mandate of price stability and maximum employment.
As the December FOMC meeting approaches, the market will be intensely focused on the release of the remaining backlogged data. However, the commentary from Fed Chair Jerome Powell will be scrutinized more than ever. With a clear statistical picture obscured, investors will be parsing every word for clues about how the central bank interprets the conflicting signals and what its trajectory for monetary policy will be heading into 2026.