Fed Navigates Uncertainty: Rate Cut Debate Intensifies as Data Remains Elusive

Federal Reserve policymakers are sharply split over the prospect of lowering interest rates in December. Governor Christopher Waller is pushing for more monetary easing to bolster a softening job market, while others warn against acting too soon due to persistent inflation worries and gaps in economic data resulting from the recent government shutdown

. Waller, who is considered a leading contender for the next Fed chair, stated in a London address that the job market is "almost at a standstill" and that tight monetary policy tends to impact lower- and middle-income groups the most . His viewpoint is shared by a minority of Fed officials who believe a rate cut in December would serve as "extra protection against a sharper downturn in the labor market," .

On the other hand, Fed Vice Chair Philip Jefferson and several regional bank leaders, including Susan Collins of Boston, have urged restraint. Jefferson, at a Kansas City Fed gathering, advocated for a "gradual" approach as the central bank nears a neutral policy, observing that while inflation risks "have eased a bit lately," they still exceed the target

. Collins, meanwhile, set a "high threshold" for more easing, cautioning that without unmistakable evidence of job market decline, additional cuts could fuel inflation again . This disagreement highlights the broader divisions within the Federal Open Market Committee (FOMC), where October meeting notes revealed "markedly divergent opinions" on the direction for December .

The challenge is compounded by a shortage of up-to-date economic statistics. The 43-day government closure postponed key releases, including September's employment figures, which are now expected on Thursday

. Waller admitted that although both private and public sources still indicate a fragile labor market, the lack of official data has left decision-makers "operating with limited visibility" in certain areas . The Fed's December gathering, scheduled for Dec. 9-10, will take place with only partial insight into recent economic developments, raising doubts about the soundness of its policy choices.

Market sentiment has also shifted. In October, traders saw a 93.7% likelihood of a December rate cut, but by Nov. 18, that figure had dropped to 47.4%

. The CME FedWatch tool now indicates about a 50% probability, as investors respond to mixed messages from Fed officials and weak employment indicators, such as a two-month peak in jobless claims . Gold prices, which often climb when rates fall, have reflected this uncertainty, moving up and down as traders assess the chances of monetary easing .

This ongoing debate highlights the Fed's challenge in balancing its dual mandate: keeping inflation in check while supporting employment. Waller and his supporters argue that inflation is "not likely to pick up" and that rate reductions are needed to stop further weakening in the job market

, while more hawkish voices like Collins and Kansas City Fed President Jeffrey Schmid believe that underlying factors such as technological change and immigration policy play a larger role in labor market softness than monetary policy does . With the September jobs report and FOMC minutes set to be released soon, the Fed faces a crucial test in managing these competing priorities.