Wall Street is addicted to the 25 basis point drip. On Friday, November 21, 2025, the dealer of last resort delivered a fresh hit. New York Fed President John Williams, speaking from the Central Bank of Chile centennial in Santiago, signaled that the Federal Reserve still sees room for a rate cut in the near term. This wasn’t a victory lap for price stability; it was a tactical retreat. While the S&P 500 hovers near 6,850, a quiet rot is forming in the bond market. The 10 year Treasury yield settled at 4.06 percent yesterday, stubbornly refusing to follow the Fed Funds rate lower. This divergence is the most dangerous signal in macroeconomics today.
The Williams Signal and the Santiago Shadow
The money is moving. When Williams, a permanent voter and part of the Fed’s inner troika, suggests that policy is still modestly restrictive, he is speaking to the debt markets, not the consumer. In his Santiago remarks, Williams admitted that progress toward the 2 percent inflation target has stalled. He attributed this to the recent tariff shocks, which he estimates have added up to 0.75 percentage points to the current 2.7 percent CPI print. Yet, he is pushing for cuts. Why? Follow the interest expense. The U.S. government is now spending more on interest than on national defense, and the Fed is being backed into a corner where it must lower the cost of sovereign debt even if inflation remains sticky.
This is the Liquidity Trap of 2025. In previous cycles, a rate cut was a signal of economic health or a response to a clear crisis. Today, it is a desperate attempt to prevent a bear steepener from crushing the banking sector. The yield curve is un-inverting, but for all the wrong reasons. Long term rates are rising while short term rates fall, a move that destroys the value of long duration assets held on bank balance sheets. If you are watching the ticker symbols, the risk is no longer about earnings growth; it is about the cost of capital.
Visualizing the Divergence: Fed Funds vs 10 Year Yields
The Ticker Trap: Why AMZN and TSLA Are Decoupling
Retail investors are cheering the 63.8 percent probability of a December cut, per the latest CME FedWatch data. They see it as fuel for the Magnificent Seven. This is a surface-level delusion. For a company like Amazon (AMZN), the benefit of a 25-basis point cut is negligible compared to the 15 percent spike in logistics and shipping costs triggered by the Q4 tariff regime. Amazon is an infrastructure play, and infrastructure requires cheap long term debt. As the 10 year yield remains above 4 percent, the discount rate applied to AMZN’s future cash flows isn’t shrinking; it is hardening.
Tesla (TSLA) faces a more technical threat. Elon Musk’s empire relies on the securitization of auto loans. When the Fed cuts the short end but the long end stays high, the cost of financing a Model Y for five years does not move in tandem with the Fed Funds rate. We are entering a period of credit contraction disguised as monetary easing. If the consumer is pinched by 2.7 percent inflation and rising insurance premiums, a marginal cut in the overnight rate won’t move the needle on unit sales. The reward is priced in; the risk is the hidden term premium.
The Banking Squeeze: JPMorgan and the Margin War
The financial sector is the real canary in the coal mine. JPMorgan Chase (JPM) and Bank of America (BAC) are currently navigating a nightmare scenario. When the Fed cuts rates, the yield on a bank’s cash and floating rate loans drops immediately. However, their cost of deposits remains high as retail customers have finally learned to move money into money market funds at the first sign of a rate slide. This is called Net Interest Margin (NIM) compression. JPM is currently trading at a premium, but that valuation assumes a soft landing that the bond market is currently questioning.
The investigative reality is that the Fed is no longer in control of the long end of the curve. Global bond vigilantes are looking at the U.S. deficit and demanding a higher risk premium. This means that even if Jerome Powell cuts rates three times in 2026, your mortgage rate might actually go up. This is the ultimate alpha for the contrarian investor: the Fed is losing its most potent tool, the ability to flatten the curve at will.
Current Market Indicators (November 22, 2025)
| Indicator | Current Value | 30-Day Trend | Economic Signal |
|---|---|---|---|
| CPI Inflation (YoY) | 2.7% | Rising | Sticky / Stagflationary |
| 10-Year Treasury Yield | 4.06% | Flattening | Term Premium Risk |
| Fed Funds Midpoint | 3.88% | Falling | Policy Panic |
| S&P 500 Level | 6,849 | Sideways | Valuation Bubble |
The Mechanics of the December Gamble
The technical mechanism of this potential December cut is a shift from inflation targeting to employment preservation. The November CPI report showed that while energy prices are cooling, shelter and services remain white hot. By cutting now, the Fed is effectively saying that a 4.6 percent unemployment rate is a bigger threat than a 3 percent inflation rate. This is a pivot toward the populist mandate. It is a signal to the markets that the Fed will tolerate higher prices to keep the engine from stalling before the January 20, 2026 inauguration of the new administration.
The smart money is not buying the rally; it is hedging the currency. We are seeing a massive rotation out of interest-sensitive growth and into hard assets and gold. The narrative of the soft landing is being maintained by the financial press, but the capital flows tell a different story. If the Fed cuts in December and the 10 year yield jumps to 4.25 percent, the stock market rally will evaporate in 48 hours. That is the risk vs. reward calculation that every portfolio manager is sweating over this weekend.
Watch the January 28, 2026, FOMC meeting. The first decision of the new year will reveal if the Fed has been fully subsumed by fiscal dominance. If the 10 year Treasury yield crosses 4.3 percent before that date, the December cut will be remembered as the match that lit the 2026 inflationary fire.
