Wall Street is holding its breath. The Federal Reserve begins its final meeting of 2025 today, and my reporting points to a 25 basis point rate cut on Wednesday, paired with a tough message on inflation. Think hawkish cut, easier policy with a clear warning to markets not to run ahead of the data.
The decision lands Wednesday at 2:00 p.m. ET, with Chair Jerome Powell at 2:30 p.m. ET. The Fed will also publish its new Summary of Economic Projections, the dot plot that maps each policymaker’s expected rate path through 2026. Futures price about a 90 percent chance of a quarter point cut. The committee is divided, which makes the guidance, not just the move, the market driver.
What a hawkish cut means now
A hawkish cut lowers the policy rate, yet signals patience on further easing. The Fed wants to insure against a softer job market, but it does not want to reignite price pressures. Inflation progress has slowed. Hiring has cooled. That mix argues for a modest cut, then a pause if inflation proves sticky.
The dot plot is the tell. If officials show fewer cuts in 2026, or a higher long run rate, stocks may wobble and the front end of the curve could sell off. If they pencil in steady disinflation and more 2026 easing, risk assets get air, and the curve likely bull steepens.
What to watch in the projections:
- The 2026 median policy rate, a higher path would be hawkish
- Core PCE inflation path, especially the 2026 level
- Unemployment outlook, signals on labor slack
- The long run rate, a higher neutral rate keeps policy tighter
Dot plot basics. The median dot matters most for markets, yet the spread shows how split the room is. A wide spread means more volatility ahead.
Markets are already positioning
Bond investors have been rotating into mid duration Treasuries, the three to seven year sweet spot. That area benefits from cuts, but carries less price risk than the long end. I am also seeing demand for five year notes from real money accounts, a sign investors expect a shallow easing path.
Mortgage rates are the outlier. They have ticked higher into the meeting. Supply, term premium, and inflation worries are keeping longer yields sticky. That is pinching homebuyers even as the Fed prepares to cut. On the short end, savers are racing to lock high CD yields before banks reset rates lower.
Stocks are mixed. Rate sensitive pockets, utilities, REITs, homebuilders, are firm into the event. Banks are choppy, since a flatter curve can squeeze net interest margins. The dollar is holding a narrow range, which keeps a lid on gold for now. A hawkish press conference would likely lift the dollar and weigh on commodities.
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Inside the Fed, and the political overhang
The split is real. Hawks warn that inflation can flare if financial conditions ease too fast. Doves see cooling wage growth and softer hiring, and argue for insurance cuts. Powell will try to keep both camps on board with flexible language. Expect something like data dependent, with a nod to inflation risks.
Politics add heat. Talk of leadership change next year, and legal jabs at Fed independence, is feeding risk premiums. None of that sets policy today, yet it can harden the Fed’s tone. A defensive Fed usually prefers to keep optionality, which means fewer promises and more ifs.
Volatility alert. Liquidity thins around 2:00 to 2:30 p.m. ET. Spreads can gap, algos can overshoot. Use limit orders and respect stops.
The investment playbook
This is how I would frame it into the decision and the press conference:
- Favor mid duration Treasuries, add on dips, avoid extremes on the long end
- Keep equity exposure tilted to quality balance sheets and steady cash flow
- Use options to hedge, puts on rate sensitive indexes can be cheap into the event
- For savers, lock CD rates soon, ladder maturities to stay flexible
- Mortgage shoppers, compare points versus rate, small buydowns can pay fast if cuts are slow
If the dots lean hawkish, expect a knee jerk selloff in the two year, a firmer dollar, and pressure on high multiple tech. If the dots lean dovish, beta will fly, small caps and cyclicals could lead, and the curve steepens as the long end sniffs better growth.
Frequently Asked Questions
Q: What time is the decision and why does the timing matter?
A: The rate decision is at 2:00 p.m. ET, the press conference at 2:30. The statement hits first, then Powell’s tone can shift markets again.
Q: What is the dot plot and why should I care?
A: It shows each official’s rate forecast. The 2026 median tells you how many more cuts, if any, the Fed expects next year.
Q: Why would mortgage rates rise if the Fed cuts?
A: Mortgages track longer Treasuries, which move on inflation risk, supply, and term premium, not just the policy rate.
Q: Is this the last cut for a while?
A: If inflation stays sticky, yes. A hawkish cut signals the Fed may pause to assess the data.
Q: What should a saver do right now?
A: Lock attractive CD or high yield savings rates, and ladder them. That keeps yield today and flexibility for tomorrow.
The bottom line, the Fed is set to ease, but it will not cheerlead. The cut likely comes with a reminder that the inflation fight is not finished. Investors who respect that balance, and manage risk around 2:00 p.m. ET, will have the edge.
