Earlier this week we asked: Is Wall Street starting to second-guess the inflation outlook? The Fed’s adding to the suspense — minutes from the Oct. 28–29 policy meeting reveal growing doubts about the case for more rate cuts.

“In discussing the near-term course of monetary policy, participants expressed strongly differing views about what policy decision would most likely be appropriate at the committee’s December meeting,” the minutes said. 

Fed funds futures reacted quickly as traders dialed down expectations for another round of policy easing at the Dec. 10 FOMC meeting. Earlier in the week, the market was pricing in a coin flip on next month’s rate decision. Following yesterday’s release of Fed minutes, the estimated probability is now firmly favoring no cut (68%).

It’s best to take all this with a grain of salt. The government shutdown delayed several economic reports that will be appearing ahead of the next Fed meeting, starting with today’s delayed payrolls report for September. But there’s also holes that won’t be filled, keeping the guesswork front and center. The US Labor Department canceled the October payrolls report, citing the government shutdown.

The unusual degree of fog on profiling the economy is lifting, but it’s reasonable to wonder if today’s assumptions could shift by more than a trivial degree between now and Dec. 10. The hawks and doves at the Fed are still debating if a third rate cut is appropriate next month. Presumably the case will strengthen, one way or another, during the next three weeks.

“I’m not decided going into the December meeting,” Chicago Federal Reserve president Austan Goolsbee told Yahoo Finance in an interview. “I am nervous about the inflation side of the ledger, where you’ve seen inflation above the target for 4.5 years and it’s trending the wrong way.”

One thing that hasn’t changed is the implied forecast for rates cuts via the policy-sensitive US 2-year Treasury yield. This key rate ticked up yesterday to 3.60%, but continues to trade in a range that’s moderately below the Fed’s current 3.75%-4.0% target. A sustained rise from current levels, however, would be a clear sign that the bond market sentiment is shifting toward the hawks.
 

Betting markets, however, are convinced that the Fed will leave rates unchanged next month: Polymarket is currently pricing in 76% odds for no change.
 

With economic data still trickling in and Fed sentiment split, December’s rate decision remains a moving target. Futures and betting markets are favoring a no-cut scenario next month, but the current confidence may be more fragile than it looks.

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