The Fed's Gamble: How Silence Became Consensus

The Federal Reserve walks into its December meeting tomorrow as a committee held together by thread. Not reason. Not conviction. Thread.

Let me be precise about what's happened over the past 48 hours, because the market narrative is already being rewritten faster than data comes in.

Two weeks ago, a December rate cut looked optional. Questionable. Powell himself said it wasn't a "foregone conclusion." The September jobs number came in hot—119,000 hires, double expectations—and the hawks circled. Boston Fed President Susan Collins. Kansas City's Jeff Schmid. Chicago's Austan Goolsbee. All making noise about staying put, about inflation sitting stubbornly at 3% when the target is 2%, about the danger of cutting into strength.

Then came weakness in private payroll data. ADP reported a surprise 32,000-job decline in November. The unemployment rate ticked up. And suddenly—within days—CME FedWatch futures swung from 50% odds of a cut to nearly 90%. Markets don't move like this without permission. And permission came in one sentence from John Williams, president of the New York Fed and Vice Chair of the FOMC: he sees "room for further adjustment in the near term."

Fed Chair Powell has not contradicted him.

That's the grammar here. Powell hasn't pushed back. The market sees a green light in absence of a red light, which is the same as a green light when you're running a central bank and the entire financial system is watching for signals.

This is what a divided committee looking for consensus actually does—it manufactures it through selective silence.

The Data Doesn't Actually Line Up

Core PCE inflation came in Friday at 2.8% annualized—lower than expected, sure. But month-over-month? Up 0.2%, exactly in line. The Treasury market is in free fall, with bond yields hitting their worst week since June. The 10-year is edging higher despite an incoming rate cut, which tells you something crucial: traders think inflation is stickier than the Fed wants to believe.

Meanwhile, layoffs hit 1.1 million in 2025—the highest since the pandemic, a 54% jump year-over-year. That's real suffering in the labor market. But is it evidence of recession or the sound of AI-driven workforce optimization? Goldman Sachs and Bank of America are both reading it as justification for a cut. But Goldman also just revised core PCE inflation forecast up to 3.2% in early 2026.

The Fed doesn't actually know. If it knew, there wouldn't be this level of division.

What a "Hawkish Cut" Really Means

Financial analysts keep bandying around the term "hawkish cut," like it's a sophisticated move. It's not. It's damage control. It's Powell saying "we're cutting a quarter point tomorrow, but don't get comfortable—the bar for future cuts is extremely high." It's insurance against being seen as a dovish institution even while distributing dovish policy.

This works until it doesn't. The last two times Powell tried hawkishness at a press conference—July and October—the market celebrated the cut and ignored the warning. Markets don't want to hear "we might pause." They want to hear "we're cutting." The audio engineers can't fix tone.

BofA expects at least two dissents tomorrow. Probably three. They've already called it "the most divided committee in recent memory." Stephen Miran (Trump's appointee) wants a 50-basis-point cut. The hawks want a hold. The doves want 25 basis points. And everyone in the middle is trying to engineer enough consensus to come out looking unified while actually being fractured along every dimension that matters.

The Real Story Is 2026

A December cut wouldn't hurt. The labor market is softening. Inflation has come down sharply from 2022 peaks. There's a defensible case. But the important decision is already being settled in the dot plots and Powell's language: 2026 is probably a pause year.

BofA is penciling in just two more cuts in 2026, both in the summer. Goldman is watching for March at the earliest. Everyone expects the Fed to signal that this week's cut is it, that we're at neutral, that the easing cycle is functionally over.

Markets are pricing in this reality but don't want to accept it. The S&P 500 slid 0.3% on Monday. Bitcoin, which had bounced back to $90,000, is sitting at levels that would have caused euphoria six months ago but now feels fragile. Natural gas tanked 7.9% Monday as warmer weather forecasts evaporated the cold-snap panic. Oil is retreating on glut fears.

The rotation is happening, but it's uneven. Some companies are hitting 52-week highs—Warner Bros. Discovery, Estee Lauder, Bank of America. Others are cratering. Jefferies is down 24% for the year. Lululemon dropped 3.67% on Tuesday. The market isn't celebrating anything; it's just moving through the motions until it understands what monetary policy actually means next year.

The Nvidia Wildcard

In a sign of how much hangs on political theater right now, Trump signed off on letting Nvidia resume shipments of its flagship AI chips to China. NVDA futures ticked up early Tuesday. This matters less because it's economically significant and more because it tells you that markets are watching policy unpredictability as a first-order risk.

The Trump administration viewed Netflix's proposed $72 billion acquisition of Warner Bros.' film and streaming assets with "heavy skepticism." Netflix sold off. The administration is simultaneously pulling levers on trade, tariffs, and chip exports while the Fed tries to thread a needle between inflation and growth.

All of this happens while the Fed cuts rates and signals a pause, which is the economic equivalent of accelerating while tapping the brakes.

Wednesday's Decision Is a Formality

The market has already voted for a cut. Powell will deliver one. It will come with hawkish language designed to suggest restraint in 2026. The committee will be divided, probably 10-2 or 9-3, with dissenters on both sides. Markets will rally briefly on the cut, tank when they hear that future cuts are unlikely, and then spend the rest of December trying to price a higher-for-longer regime.

What actually matters is what Powell says tomorrow at 2:30 p.m. ET during the press conference. Not about December. About next year. About whether the Fed sees itself as done or merely pausing. About whether inflation fears or labor market fears win the committee's heart in the months ahead.

Until then, everything is theater, and the Fed is a committee of excellent actors pretending to know something about the future when really they're just trying to keep the market calm while the real economy figures out whether it's in a soft landing or a precarious stall.

The thread is holding. For now.