The probability of a Fed interest rate cut in December cools down as cracks appear in the AI narrative.

As of November 15, 2025, the global financial markets have experienced significant fluctuations this week. The U.S. federal government has undergone the longest shutdown in history (from October 1, 2025, to November 12, 2025, lasting 43 days), resulting in permanent loss of key data such as October non-farm payroll and October CPI. The market is trading in a data vacuum, with fluctuating emotions.

1. The probability of the Federal Reserve lowering interest rates in December has dropped significantly to below 50%.

After the September FOMC meeting, the market briefly priced in a 100% expectation of a 25bp rate cut in December, mainly based on the dot plot for the month indicating that most officials expected the median federal funds rate to fall within the 4.25-4.50% range by the end of 2025 (which means a further cut of 50bp, with one cut in December). However, the minutes from the October meeting and statements from several Federal Reserve officials since November have completely changed this expectation.

1. Latest Statements from Key Officials (November 4-14, 2025)

• Federal Reserve Governor Waller (2025.11.13): There is currently not enough reason to continue lowering interest rates in December unless future data significantly worsens.
• Richmond Fed President Barkin (2025.11.12): Leaning towards a pause in December to observe the implementation of tariff policies.
• Boston Fed President Collins (2025.11.8): The labor market remains robust, inflation has not returned to 2%, and there is no urgency for further easing.
• Minneapolis Fed President Kashkari (2025.11.14): Remains highly vigilant regarding the risk of inflation accelerating again.

2. Current latest market pricing (CME FedWatch Tool on November 15)

• The probability of maintaining the interest rate at 5.25-5.50% in the meeting on December 17 is: 52.4%
• Probability of a 25bp rate cut: 47.6%
• Probability of a 50bp rate cut: almost 0

3. Core Controversial Points

• Inflation: The October CPI is permanently missing, but the September core PCE is still at 2.7%, with an annualized rate of 2.6% over the past 6 months, still above the 2% target.
• Employment: Non-farm payrolls in September increased by only 123,000 (significantly below expectations), the unemployment rate rose to 4.2%, but data for October is missing, and the number of people continuing to apply for unemployment benefits in the first two weeks of November continued to rise moderately.
• Tariff Impact: The market generally expects that Trump will implement a 10-20% general tariff and a 60% tariff on China during his second term. Traditional views hold that tariffs push up inflation, but the San Francisco Fed's latest research paper released on November 11, titled “Empirical Evidence from 150 Years of U.S. Tariff History,” points out that historically, the net effect of tariffs on CPI has been -0.2 to -0.5 percentage points, while significantly increasing unemployment rates, representing a “supply-side contraction + demand suppression” combination, which ultimately often leads to larger rate cuts by the Federal Reserve.

4. The Debate on the Actual Neutral Interest Rate Currently, the federal funds rate is 5.33%, and there is a significant divergence in the market's estimation of the actual r* (equilibrium real interest rate):

• New York Fed ACL model latest estimate: r* is approximately 1.0-1.2%
• If r*=1%, then the current real interest rate is approximately 5.33%-2.4%=2.93%, which is obviously restrictive.
• If r* has risen to 2% due to productivity improvements, then the actual restrictive effect has significantly decreased.

Due to the aforementioned fourfold uncertainty (inflation path, real employment situation, actual impact of tariffs, r* level), there is a clear division within the FOMC, with the December rate cut shifting from a “done deal” to a “fifty-fifty chance.”

2. Two Obvious Cracks in the AI Capital Expenditure Narrative

Since 2025, AI-related capital expenditures have been the primary narrative driving the US stock market (especially the Magnificent 7), with a total announced amount exceeding $1.5 trillion. However, since November, the bond market and accounting treatment disputes have created dual pressure.

1. Bond Market: Credit Default Swaps (CDS) widen significantly

• Oracle 5-year CDS: approximately 45bp at the end of October → peaked at 152bp on November 14 (increase of 237%)
• CoreWeave (AI computing power leasing unicorn, plans to issue $15 billion in bonds/loans in 2025) 5-year CDS: approximately 280bp at the beginning of November → peaked at 980bp on November 14.
• Comparison: Core hyperscale cloud service providers like Meta, Google, Amazon, and Microsoft still maintain historical lows of 20-40bp in CDS.

Signals from the bond market indicate that investors' confidence in the “pure AI concept + high leverage data center” model is wavering, while confidence remains strong in cash-rich super-large players.

2. Accounting Dispute: Is the GPU depreciation period too long? Notable short seller Michael Burry publicly questioned on his new Twitter account on November 12:

• Currently, Meta, Google, and Microsoft generally adopt a GPU depreciation period of 4-6 years (mostly 5 years).
• However, in AI training clusters, over 90% of computing power demand is concentrated on the latest generation of chips, while the utilization of older generation chips is rapidly declining.
• Historical Experience: From 2018 to 2022, the average depreciation period of Facebook data center servers was only 3.2 years.

Impact assessment (taking Meta as an example): In 2025, Meta's capital expenditure guidance is between $145 billion and $160 billion, with approximately 60-70% related to AI servers/GPUs. If the depreciation period is shortened from 5 years to 3 years:

• Depreciation expenses in 2026 will increase by an additional approximately $18-22 billion.
• Equivalent to a downward adjustment of approximately 9-11% in EPS for 2026 (based on current analyst consensus expectations)

3. Latest capital expenditure data (Q3 2025 financial report and latest guidance)

• Microsoft: FY2025 CapEx guidance raised to $75 billion (+25%)
• Meta: 2025 CapEx $60-65 billion (median year-on-year +55%)
• Google: Expected to be $55-60 billion in 2025
• Amazon (AWS): Expected to exceed $70 billion in 2025
• The combined AI-related CapEx of the four companies is expected to exceed $270 billion in 2025.

Despite the depreciation controversy, the market currently shows a very high tolerance for valuations:

• Meta 2026e P/E 24x (10-year average 18x)
• Microsoft 2026e P/E 32x
• Nvidia 2026e P/E 38x (latest Wall Street target price range 140-220 USD)

3. Technical Aspects and Seasonal Factors

S&P 500 Index:

• On November 13, the lowest point dropped to 5728, and after accurately testing the 50-day moving average (5718), it quickly rebounded.
• Currently located near 5950 points, down 1.8% for the week, but still up 3.2% for the month.
• The average VIX from November to present is 18.5, significantly down from October.
• Historical Data: Since 1950, the average increase of the S&P 500 from Thanksgiving to New Year is 1.7% (the holiday effect is real).

IV. Key Events Next Week (November 17-21)

1. Data

• October Non-Farm Payroll Report (Delayed Release): Expected +220k (Compensating for September's Low Base)
• October Retail Sales, PPI, Industrial Production
• Philadelphia Fed Manufacturing Index for November

2. Financial Report

• Nvidia (after market on November 19): Market expects Q3 revenue of $38 billion (up 94% year-on-year), Q4 guidance of $41-43 billion. Current consensus expectation for FY2026 EPS is $4.25, and if guidance exceeds expectations by 10%, the target price could reach over $200.

5. Summary and Outlook

Current core contradictions in the market:

1. Whether the Federal Reserve will cut interest rates in December depends on whether the data in the next two weeks is significantly below expectations.
2. AI narratives raise credit concerns among marginal players, but still maintain strength supported by cash flow from core large-scale players.
3. The 50-day moving average has successfully provided support three times + seasonal strength remains bullish

Base scenario (probability 60%): Although October's non-farm payrolls may be relatively strong due to gap filling, the data for November-December is likely to decline significantly. Coupled with the limited economic disturbance from the initial implementation of tariffs, the Federal Reserve is expected to cut interest rates by 25bp in December. Nvidia's earnings report exceeds expectations, and the S&P 500 is set to challenge the 6500-7000 point range by the end of the year.

Pessimistic scenario (Probability 25%): If the October data is significantly better than expected, a pause in interest rate cuts in December will become a certainty, and the AI depreciation controversy will escalate, the index may test around 5500 points.

Optimistic scenario (15% probability): Data significantly underperforms expectations + Nvidia guidance is greatly raised, with a return to pricing for a rate cut in December, directly impacting 7200 points before the end of the year.