The probability of a Federal Reserve rate cut in December has surged to 84.7%. This dramatic shift occurred after the release of the US core PPI data for September, which rose 2.6% year-over-year, falling short of the expected 2.7%.
Meanwhile, retail sales for September increased just 0.2% month-over-month, significantly below both the previous figure of 0.6% and the forecast of 0.4%, signaling a slowdown in US economic momentum.
The weakening of these key economic indicators, combined with recent dovish remarks from Fed officials, has fueled strong market expectations that the Fed is about to begin a rate-cutting cycle.
01 Weak Economic Data
The latest US economic data provides ample justification for a Fed rate cut.
According to data released Tuesday by the US Bureau of Labor Statistics, September PPI rose 0.3% month-over-month, meeting expectations. However, core PPI (excluding food and energy) increased just 0.1%, below the expected 0.2%.
This marks the lowest year-over-year increase in core PPI since July 2024.
Omair Sharif, head of inflation forecasting firm Inflation Insights, projects that September’s core PCE—the Fed’s preferred inflation gauge—will rise 0.2% month-over-month.
The annual growth rate is expected to fall from 2.9% in August to 2.8%, moving closer to the Fed’s 2% inflation target.
On the other hand, retail sales data also showed signs of weakness. September retail sales rose only 0.2% month-over-month, a sharp drop from August’s 0.6%.
Mike Reid, economist at Royal Bank of Canada, pointed out that "control group" sales (excluding autos, building materials, gasoline, and food services) fell 0.1% month-over-month, suggesting that middle- and lower-income consumers may "be starting to feel the strain."
02 Dovish Signals from Fed Officials
Several Fed officials have recently made dovish public statements, further strengthening market expectations for a December rate cut.
Fed Governor Milan was blunt in a recent speech: "The US economy needs significant rate cuts; monetary policy is hindering economic growth."
Milan argued that inflation is not a problem in the US and warned, "If we do not continue to cut rates, and do so at a reasonable pace, the unemployment rate will keep rising."
San Francisco Fed President Mary Daly also voiced support for a December rate cut. She believes the risk of a sudden deterioration in the job market is greater—and harder to address—than the risk of inflation surging again.
Daly’s stance is notable because she rarely publicly disagrees with Fed Chair Jerome Powell.
Also noteworthy, Fed Governor Christopher Waller—a leading candidate for the next Fed Chair—has stated his support for a December rate cut.
These comments make it clear that support for rate cuts is building within the Fed.
03 Sharply Rising Market Expectations
As economic data weakens and Fed officials take a dovish tone, market expectations for rate cuts have shifted dramatically.
According to the latest data from the CME "FedWatch" tool, the probability of a 25-basis-point Fed rate cut in December has climbed to 84.7%, while the chance of rates remaining unchanged is just 15.3%.
This is a sharp rise from 44% just a week ago, indicating a significant shift in market sentiment.
Jan Hatzius, chief economist at Goldman Sachs, noted, "Given that the next jobs report is scheduled for December 16 and CPI data for December 18, there are virtually no obstacles in the current calendar to a rate cut on December 10."
Anwiti Bahuguna, Global Co-Chief Investment Officer at Northern Trust Asset Management, believes that due to delays in the release of several economic indicators caused by the US government shutdown, the Fed may opt for a "preemptive rate cut" next month.
04 Market Impact of Rate Cut Expectations
Rising expectations for Fed rate cuts have already triggered a chain reaction across global asset prices.
Major US stock indices have staged a V-shaped rebound. As of the close on November 25, the Dow rose 1.43%, the S&P 500 gained 0.91%, and the Nasdaq climbed 0.67%.
Europe’s three major stock indices also rallied across the board that day.
The cryptocurrency market is experiencing broad gains as well.
According to CoinMarketCap data, on November 26, several tokens hit recent highs.
MON (Monad) surged 44.78% that day, IP (Story) rose 22.72%, and SPX (SPX6900) gained 13.36%.
This wave of gains has been concentrated in emerging public chains and infrastructure projects, reflecting the market’s focus on technological innovation.
The gold market has also been affected, with both domestic and international precious metals markets trending stronger amid rising expectations for Fed rate cuts.
05 Divisions and Challenges Within the Fed
Despite soaring market expectations for rate cuts, there are still clear divisions within the Fed.
Minutes from the Fed’s October FOMC meeting reveal significant disagreements among policymakers over last month’s rate cut.
Cleveland Fed President Loretta Mester firmly opposed further rate cuts, stressing that high inflation remains uncontained and advocating for a more restrictive monetary policy.
Chicago Fed President Austan Goolsbee also expressed unease about another rate cut in December, noting that the decline in inflation has stalled and may even be reversing.
These divisions mean that the outcome of the December policy meeting remains uncertain.
CITIC Securities points out that while US nonfarm payrolls increased by 119,000 in September—well above the forecast of 51,000—
It’s important to note that the figures for August and July were revised down by a combined 33,000, and both the unemployment rate and the number of permanently unemployed have risen.
Jerry Chen, senior analyst at Gain Capital, also believes there is significant uncertainty around a December Fed rate cut.
The reason: US nonfarm payroll and CPI data for October will not be released, and November’s data will be delayed until mid-December.
This means the Fed will not have the latest employment and inflation data before making its December rate decision.
06 Investor Strategies and Market Outlook
At this critical turning point in Fed policy, investors need to closely monitor market dynamics and adjust their strategies accordingly.
A shift in Fed policy is now widely expected, but the path forward remains uncertain. Fed Governor Waller has stated that once a large amount of economic data is available in January, the Fed will likely make decisions "on a meeting-by-meeting basis."
For cryptocurrency investors, Huishang Futures precious metals analyst Cong Shanshan advises: "Currently, expectations for Fed policy remain the key factor influencing precious metal price trends." This view applies equally to the cryptocurrency market.
Zhan Dapeng, Director of Nonferrous Metals at Everbright Futures Research Institute, notes that there are significant differences in market views on the precious metals sector.
He points out: "Passive rate cuts by the Fed are unsustainable. Even if there is a rate cut in December, it will likely slow the pace of rate cuts in the first quarter of next year."
In the medium to long term, global central bank gold purchases remain robust, with China’s central bank increasing its gold holdings for 12 consecutive months.
Combined with global monetary expansion and the trend toward de-dollarization, these factors will continue to support higher gold prices.
Zhan Dapeng recommends that, with potential negative factors not yet fully priced in and market trends still unclear, traders should remain cautious or consider buying on dips as part of a broader asset allocation strategy.
Outlook
All eyes are now on the Fed’s policy meeting scheduled for December 9–10. Fed Chair Jerome Powell will play a pivotal role in resolving internal divisions.
Regardless of the outcome, US monetary policy is at a crucial turning point—one that will profoundly impact global asset allocation.
For everyday investors, in an environment of rising uncertainty, diversification and rigorous risk management are more important than ever.
