Market Thoughts: I really can’t help you there

The Federal Reserve (Fed) cut policy rates as expected by 25bps, to 3.5-3.75%. It’s the third back-to-back cut. An able central bank lets markets do the heavy lifting. It nudges investors to where it wants them to go, sometimes kicking and screaming.

This particular policy meeting is being spun a hawkish cut. I disagree. That narrative comes from pundits pushing for as many rate cuts as they can get. Animal spirits in full force.

Dynamic tension between the Fed’s goals of full employment and containing still sticky inflation is on an upswing. They didn’t ease hawkishly. They’re well-grounded on delivering their dual mandate. To borrow from Chair Powell at his presser… when the Fed perceives both sides of their mandate equally at risk the smartest thing to do is stand still.

Powell gave a lot more than he usually does at this press conference. Alan Greenspan might wince. The art of saying much and little at the same time. Rope-a-dope. It tends to be the ‘safest’ way for policymakers and politicians alike to handle a press conference.

The summary of economic projections (SEP) continues to show sticky inflation. The Fed’s preferred inflation measure—the personal consumption expenditure index (PCE)—is expected to decline as we advance through next year. Crawling towards a 2% finish line in 2028.

December SEP forecasts have headline PCE falling from 2.9% year-over-year (yoy) at the end of 2025, to 2.4% next year. Core PCE is expected to decline from 3% yoy to 2.5%. Neither of those forecasts are 2%, the Fed’s stated policy target.

Jay Powell, for a moment or two, let the press conference into the Fed’s kitchen. They believe about half the difference between current state and their inflation target reflects a one-off pass-through from tariffs on imported goods. They expect that delta to roll off next year.

Investors haven’t heard enough about why the Fed has rising concern about employment. Hiring has stalled, firings aren’t accelerating, job postings are on the rise. I will point out job postings are just that. Nothing more or less. Unless you’re looking for a job. Left unfilled, they become deflating.

We’re seeing rising frustration in political polling. The current administration was elected on a promise to address affordability. A year in voters are expressing exasperation that the promise to ‘fix it’ isn’t being delivered on fast enough. The problems you inherit eventually become your own.

Policymakers are concerned because their modeling no longer points to ‘simply’ fewer jobs. The Fed thinks job creation may have turned negative. So why didn’t they cut 50bps? Because inflation is high, and they may be wrong about their forecast for tariff inflation rolling off next year.

Companies have been absorbing some of the drag from tariffs in their margins. Those that have chosen to eat some of that cost—because it’s viewed as politically expedient, or they hope the Supreme Court rules tariffs will be rescinded—may decide to push through those costs next year. That would create an environment where inflation is far more persistent.

The Fed’s mission today is a balancing act almost impossible to deliver with precision, let alone certainty. That clearly showed in FOMC dissents, hard and soft. We saw three hard dissents to the 25bps rate cut from the twelve voters: one wanted a 50bps cut, two preferred no rate cut at all.

There were six ‘soft dissents’ woven into the summary of economic projections. Six Fed funds policy rate forecasts were for no change at this meeting. There are a total of 19 members of the Fed that provide forecasts, seven Board Governors and the twelve Federal Reserve Bank Presidents.

For 2026, the median SEP forecast is for a single rate cut. The swirling narrative of a “fractured Fed” strikes me disingenuous. It implies infighting. The dissents reflect a Fed grappling with a Goldilocks moment. How do they land on a neutral rate neither too hot nor cold? Powell said he views policy rates at the “high-end” of neutral. A wink the policy bias appears to be for modestly lower rates.

Powell laid out the Fed’s base case view and offered insight about the tail risks to employment and around inflation. The Fed wrapped up ‘round one’ of labor market risk management. Mission accomplished? Not quite. Powell was forthright in saying that. Investors should listen.

Markets initially reacted to the Fed’s policy action with a bit of a shrug. Those craving the adrenaline rush of future rapid fire rate cuts cried foul. For this meeting, I applaud how the challenges facing the Fed were addressed. Directly, with emphasis on getting it right and how hard that is.

Calming investor exuberance is healthy. It creates an ability to ‘digest’ valuation levels. We expect upside to markets ahead. We’re grounding that base case view on economic fundamentals, earnings, corporate balance sheets and ongoing stability across credit markets. Each essential.

How do we get there? Undoubtedly with turbulence and a few wobbles. Powell didn’t say this about markets, but my favorite press conference ‘one liner’ from him seems an appropriate rejoinder in interrogating the immediate path of markets. I can’t really help you there.

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 12/11/25.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.