Trump will not be happy with this.

(Click on image to enlarge)

Please consider the Polymarket December 10 Fed Decision Probabilities.

• No Change: 67 Percent (matching CME Fedwatch)
• Quarter-Point Cut: 32 Percent
• Half-Point Cut: 2 Percent
• Quarter-Point Hike: 0.5 Percent

No Change went from 6.0 percent on October 27 to 45 percent yesterday, to 67 percent today.

We have gone from a 94 percent chance of a cut less than a month ago to 33 percent today.

FOMC Minutes (Emphasis Mine)

The Minutes of the October 28–29 FOMC Meeting are responsible for today’s no-change jump from 45 percent to 67 percent.

Staff Review of the Economic Situation

The information available at the time of the meeting indicated that growth of real gross domestic product (GDP) had moderated over the first half of the year. Information on the labor market was limited by the federal government shutdown; however, available indicators were consistent with a continued gradual cooling in the labor market without any evidence of a sharp deterioration. Consumer price inflation had moved up since earlier in the year and remained somewhat elevated.

Total consumer price inflation—as measured by the 12-month change in the price index for personal consumption expenditures (PCE)—was estimated to have been 2.8 percent in September based on data from the consumer price index. Core PCE price inflation, which excludes changes in consumer energy prices and many consumer food prices, was also estimated to have been 2.8 percent in September. These estimates implied that total PCE price inflation had risen 0.5 percentage point relative to a year ago and that core PCE inflation was unchanged from its year-earlier rate.

Staff Economic Outlook

Relative to the forecast prepared for the September meeting, real GDP growth was projected to be modestly stronger, on balance, through 2028, reflecting stronger expected potential output growth and greater projected support from financial conditions. GDP growth after 2025 was expected to remain above potential until 2028 as the drag from higher tariffs waned, with financial conditions becoming a tailwind for spending. As a result, the unemployment rate was expected to decline gradually after this year before flattening out at a level slightly below the staff’s estimate of the natural rate of unemployment.

The staff’s inflation forecast was broadly similar to the one prepared for the September meeting, with tariff increases expected to put upward pressure on inflation in 2025 and 2026. Thereafter, inflation was projected to return to its previous disinflationary trend.

The staff continued to view the uncertainty around the forecast as elevated, citing a cooling labor market, still-elevated inflation, heightened uncertainty about government policy changes and their effects on the economy, and the limited availability of data caused by the government shutdown. Risks around the employment and GDP forecasts continued to be seen as skewed to the downside, as elevated economic uncertainty and a cooling labor market raised the risk of a sharper-than-expected weakening in labor market conditions and output growth. Risks around the inflation forecast continued to be seen as skewed to the upside, as the elevated levels of some measures of expected inflation and more than four consecutive years of actual inflation above 2 percent raised the possibility that this year’s projected rise in inflation would prove to be more persistent than the staff anticipated.

Participants’ Views on Current Conditions and the Economic Outlook

In their discussion of inflation, participants observed that overall inflation had moved up since earlier in the year and remained somewhat above the Committee’s 2 percent longer-run goal. Participants generally noted that core inflation had remained elevated, as disinflation in housing services had been more than offset by higher goods inflation, reflecting in part the effects of tariff increases implemented earlier in the year. Several participants observed that, setting aside their estimates of tariff effects, inflation was close to the Committee’s target. Many participants, however, remarked that overall inflation had been above target for some time and had shown little sign of returning sustainably to the 2 percent objective in a timely manner.

Participants generally expected inflation to remain somewhat elevated in the near term before moving gradually to 2 percent. Several participants pointed to the persistence in core nonhousing services inflation as a factor that may keep overall inflation above 2 percent in the near term. Many participants expected some additional pickup in core goods inflation over the next few quarters, driven in part by further pass-through of tariffs to firms’ pricing. Several participants expressed uncertainty about the timing and magnitude of tariff-related price effects, noting that some businesses were reportedly waiting to adjust prices until tariff policies seemed more settled.

With regard to the labor market, participants observed that the data available before the government shutdown indicated that job gains had slowed this year and that the unemployment rate had edged up but remained low through August. Participants commented on the lack of the Employment Situation report for September during this intermeeting period and reported relying on private-sector and limited government data, as well as information provided by businesses and community contacts, to assess labor market conditions.

Participants generally attributed the slowdown in job creation to both reduced labor supply—stemming from lower immigration and labor force participation—and less labor demand amid moderate economic growth and elevated uncertainty. Many participants remarked that structural factors such as investment related to AI and other productivity-enhancing technologies may be contributing to softer labor demand.

Participants generally judged that uncertainty about the economic outlook remained elevated. Participants saw risks to both sides of the Committee’s dual mandate, with many indicating that downside risks to employment had increased since earlier in the year, as the unemployment rate ticked up and the pace of job gains slowed, leaving the labor market more susceptible to any negative shock. Many participants continued to see upside risks to their inflation outlook, pointing to the possibility that elevated inflation could prove more persistent than currently expected even after the effects of this year’s tariff increases fade. A few participants remarked on the risk that trade tensions could disrupt global supply chains and weigh on overall economic activity. Many participants observed that the divergence between solid economic growth and weak job creation created a particularly challenging environment for policy decisions, requiring careful monitoring of incoming data to distinguish between cyclical weakness and structural changes in the relationship between output and employment. 

In their consideration of monetary policy at this meeting, participants noted that inflation had moved up since earlier in the year and remained somewhat elevated. Participants further noted that available indicators suggested that economic activity had been expanding at a moderate pace. They observed that job gains had slowed this year and that the unemployment rate had edged up but remained low through August. 

Those who preferred to keep the target range for the federal funds rate unchanged at this meeting expressed concern that progress toward the Committee’s inflation objective had stalled this year, as inflation readings increased, or that more confidence was needed that inflation was on a course toward the Committee’s 2 percent objective, while also noting that longer-term inflation expectations could rise should inflation not return to 2 percent in a timely manner. One participant [Trump’s new appointment] agreed with the need to move toward a more neutral monetary policy stance but preferred a 1/2 percentage point reduction at this meeting. 

In discussing risk-management considerations that could bear on the outlook for monetary policy, participants generally judged that upside risks to inflation remained elevated and that downside risks to employment were elevated and had increased since the first half of the year.

Most participants noted that, against a backdrop of elevated inflation readings and a very gradual cooling of labor market conditions, further policy rate reductions could add to the risk of higher inflation becoming entrenched or could be misinterpreted as implying a lack of policymaker commitment to the 2 percent inflation objective. Participants judged that a careful balancing of risks was required and agreed on the importance of well-anchored longer-term inflation expectations in achieving the Committee’s dual-mandate objectives.

Mish Comments on Participants’ Views

I certainly agree on downside risk to the labor market. I agree so much so that I would no longer call it a “risk” but rather something that has already started.

I expected this to be obvious by the December 10 meeting, pending BLS jobs reports that reasonably make sense, in alignment with recent ADP and Revelio reports.

However, moments ago the BLS made these announcements.

• BLS will not publish an October 2025 Employment Situation news release.
• Establishment survey data from the Current Employment Statistics survey for October 2025 will be published with the November 2025 data.
• Household survey data from the Current Population Survey could not be collected for the October 2025 reference period due to a lapse in appropriations. The household survey data is not able to be retroactively collected. The collection period for November 2025 data will be extended for both surveys, and extra processing time will be added.

I expected only the Household Survey would be cancelled. This means the Fed will be without both employment and CPI data for the meeting.

Regarding inflation, it is reasonable for the Fed to be concerned. Trump’s policies could easily cause stagflation. But if so, I expect it would be short-lived.

Expect a Big Political Debate

The Fed is going to be accused of partisan politics. And the lack of data will let the Fed do what it wants.

Yet, a significant percentage of people believe the Fed should only pay attention to inflation.

And I am of the position there should not be a Fed at all. But I also have the caveat that an independent Fed is better than a partisan Fed run for political purposes, regardless of which party is in power.

I don’t want to debate “independent”. I simply want to stress that a partisan Fed is the worst outcome. The best outcome would be rates set by a free market, not politicians, and also not alleged wizards with a proven track record of not knowing what the hell they are doing.

The Labor Market Recap

• ADP: On November 6 I noted Private Employers Added 42,000 Jobs in October, First Increase Since July
• Revelio: On November 7, I noted Revelio’s Realistic Assessment of the US Labor Market and Jobs – Sinking Fast
• Challenger & Gray Layoffs: On November 6, I noted Cost Cutting Hits Jobs. October Layoffs Surge to Highest Level in 20 Years
• Richmond Fed: On November 6 I noted Richmond Fed Survey Shows Small Businesses Impacted More by Tariffs

ADP Pulse

Onn November 14, I noted ADP Pulse of Net Private Job Creation Drops to Negative 11,250 Per Week

How fast is the economy shedding jobs?

My assessment is fast. Especially small businesses that I believe are under-sampled.

Importantly, consider the pulse of -11,250 (-45,000) as a revised estimate of ADP’s +42,000 for October.

The Fed could have taken this into consideration. But it’s clear that they didn’t.

And this will have Trump howling in conflicting directions about the “best ever” economy and “no inflation” while slashing tariffs to combat the inflation he caused, while denying he caused inflation.

Finally, on the small-business picture, please read How Trump’s Liberation Day Tariffs Work in Practice.

I discuss one example, an anecdote of how tariffs put a sawmill out of production.

Here’s a comment by the sawmill owner. ”I don’t have a problem that there’s a different technology that is better than what we have. Or that makes us obsolete. I don’t have a problem with that. I have a problem with the government policy making us obsolete.”

Bloomberg made comments supporting what I have been saying all year.

Bloomberg’s Comments

• But the story of tariffs through history has always been that they lead to retaliation and unintended consequences.
• Since April, Trump’s tariffs have shocked supply chains, and raised prices of both imported and domestic goods. While President Trump has promised a “manufacturing renaissance”, between April and August the US actually lost 42,000 manufacturing jobs.
• Not all of that economic damage – if you talk to economists, people in business, small business people – is gonna be fixed immediately. There is no easy solution to repair that.
• The last board at Mackeys Ferry Sawmill came off the production line on September 29. Wilson and Stephen laid off 50 people, some of whom had worked for the mill for decades.
• This is not just a story about a sawmill in North Carolina and a little crossroads of a place. This is a story about what’s going on in a lot of rural America right now.
•  I write about economics. Economics is data. It’s aggregate data. And we often lose sight of the fact that, that economics is people.

Well, I write about the economy, and people. And I make assessments and predictions. Not all of them are right. But this one has been.

Please read please read How Trump’s Liberation Day Tariffs Work in Practice and multiply that across rural America.

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