The Fed is not in a hurry.
Jerome Powell’s speech yesterday at the Dallas Regional Chamber on November 13, 2025, effectively dismantled the market’s aggressive easing timeline. The narrative of a friction-less descent toward a 3 percent terminal rate has been replaced by a cautious, data-dependent pause. Powell explicitly noted that the economy is not sending any signals that the Federal Reserve needs to be in a hurry to lower rates. This shift in tone suggests that the central bank is recalibrating its response to an economy that remains surprisingly resilient despite the highest nominal rates in two decades.
Goldman Sachs fights the tape.
While the broader market panicked after the Dallas remarks, Jan Hatzius and his team at Goldman Sachs are maintaining their call for a 25-basis point cut in December 2025. Their conviction rests on the cooling of the labor market rather than just the volatile headline inflation numbers. Per the latest October CPI report released two days ago, headline inflation rose 2.6 percent annually, matching expectations but showing a sticky core component that remains at 3.3 percent. Goldman Sachs argues that the Fed will prioritize getting the policy rate closer to a neutral setting (estimated around 3.5 percent) before the window for a soft landing closes.
Visualizing the December Rate Cut Probabilities
The technical mechanism of sticky inflation.
Sticky inflation is not a buzzword; it is a structural byproduct of shelter costs and insurance premiums. Shelter costs, which represent roughly one third of the Consumer Price Index, have lagged behind the real-time cooling of the rental market. In the October data, the Owners Equivalent Rent component remained elevated, preventing a clean break below the 2.5 percent threshold. For the Fed to justify a December cut, they need to see these lagging indicators finally converge with the softer leading data found in the Zillow Observed Rent Index. If they do not, the Fed risks a 1970s-style second wave of inflation by easing into a robust labor market.
A divergence in institutional sentiment.
The gap between the CME FedWatch Tool and the Federal Open Market Committee (FOMC) Dot Plot is widening. Traders are currently pricing in a more aggressive easing cycle than the Fed’s own projections would suggest. This creates a volatility trap. If the Fed follows the Goldman Sachs forecast and cuts in December, the markets may rally on liquidity. However, if they hold steady as Powell hinted in Dallas, we could see a massive repricing of the 10-year Treasury yield, which touched 4.45 percent this week. This yield spike directly impacts mortgage rates and corporate debt refinancing, potentially choking off growth in early 2026.
Macroeconomic Indicators: Nov 2024 vs. Nov 2025
| Metric | November 2024 | November 2025 (Current) |
|---|---|---|
| Fed Funds Rate | 5.25% – 5.50% | 4.50% – 4.75% |
| Headline CPI (YoY) | 3.2% | 2.6% |
| Unemployment Rate | 3.9% | 4.1% |
| 10-Year Treasury Yield | 4.12% | 4.45% |
Asset class sensitivity to the 4.5 percent floor.
Real estate remains the most vulnerable sector. With the 30-year fixed mortgage rate hovering near 7 percent again due to rising Treasury yields, the housing market remains in a deep freeze. Sellers are locked into 3 percent rates from 2021, and buyers are priced out by the combination of high prices and high borrowing costs. According to the latest market analysis from Reuters, real estate investment trusts (REITs) have seen a 4 percent drawdown in the last 72 hours as investors realize the easy-money era is not returning as quickly as hoped.
The shadow of fiscal policy.
Monetary policy is only one half of the equation. The market is now pricing in the inflationary impact of potential 2026 fiscal expansion. If the Fed cuts rates while the government increases spending or implements new tariffs, the resulting inflationary pressure would force the Fed to reverse course and hike rates again. This “stop-go” policy is the nightmare scenario for the bond market. Powell’s hesitation is a signal that he is watching the fiscal horizon just as closely as the labor data. He wants to avoid the mistake made by the Fed in the early 1980s when easing too early allowed inflation to take permanent root.
The next critical data point arrives on December 5, 2025, with the release of the November Non-Farm Payrolls report. This will be the final definitive piece of evidence the Fed receives before the December 17 interest rate decision. If job growth exceeds 150,000, expect the Fed to skip the December cut entirely, potentially leaving the policy rate at its current restrictive level well into the first quarter of 2026.
