Breaking: December Fed meeting turns into cliffhanger as officials debate a cut
The Federal Reserve’s final meeting of 2025 is running hot. Policymakers are weighing a 25 basis point cut, the third this year, with the decision set for tomorrow. I am tracking deep divisions inside the committee and scarce official data after the shutdown. That mix is fueling real time moves in bonds, mortgages, and cash yields.
What is happening now
The two day FOMC meeting wraps Wednesday, with Chair Jerome Powell set to speak soon after. The policy choice is tight. Some officials want another small cut to protect a softer labor market. Others want to wait, with inflation still above the 2 percent goal and services prices sticky.
The data backdrop is thin. The shutdown delayed key government reports. In their place, the Fed is leaning on private readings like layoffs, card spending, and rent trackers. Those signals are mixed, which raises the risk of a dissent or a cautious message.
Policy is at a crossroads. A small cut with a hawkish tone is on the table, and so is a hold paired with a dovish path.
What the Fed publishes next matters as much as the rate move. The new dot plot, the chart of where officials see rates over time, will show how many cuts they expect in 2026. Powell’s words on inflation progress and labor slack will shape the market path into year end.
Markets are already moving
Investors are not waiting. Large sums, roughly 104 billion dollars, have flowed into money market funds in recent days. That is a safety play while the path is unclear. Bond trading is choppy. Short term yields reflect near term cuts. Long term yields are less sure, as growth, deficits, and supply still loom.
Mortgage rates have edged up even as a cut is on the table. That sounds odd, but it happens when long yields rise on uncertainty. Homebuyers feel that pain first. At the same time, savers are racing to lock in today’s CD rates, which remain attractive but could slip if the Fed signals more easing.
Credit spreads are steady into the meeting. Investment grade is better bid than high yield, a nod to caution. In equities, rate sensitive groups are split. Homebuilders want lower rates but fear a mixed message. Banks prefer a steeper yield curve, not just a token cut.
If you need a mortgage soon, get at least two lender quotes today. Rate locks can shield you from a post decision swing.
What to watch from Powell
Powell’s press conference will carry the day. Watch for three things.
- How he describes inflation progress, especially services and wages
- Whether he hints at more cuts early in 2026 or a longer pause
- How he frames risks, growth weakness or inflation persistence
A cut with a warning on inflation would be a dovish move wrapped in a hawkish message. A hold with softer dots for 2026 would be the reverse. Either mix could swing the curve, especially the two year and the ten year.
The dot plot dilemma
If the median dot shows only modest easing next year, markets may pull back on duration bets. If the dots open the door to a quicker glide lower, the rally could extend along the mid curve.
What this means for your money
For households, the split picture requires simple, fast choices. CD rates near current levels may not last. Credit card APRs, which follow the Fed closely, could tick down with a cut, but only a little at first. Mortgage rates depend more on long bonds, so they can move opposite to the Fed for a while.
For investors, keep risk balanced. Cash yields are still high by recent standards. Short and mid duration bonds offer income with less rate shock than the long end. Equity sectors that thrive on lower rates, like utilities and REITs, need a clearer path to ease before they run.
Here are targeted moves to consider before and after the decision:
- Ladder 3 to 18 month CDs to keep yield and flexibility
- Add to 2 to 5 year Treasuries on dips, keep duration moderate
- Prefer quality in credit, avoid the weakest high yield for now
- In stocks, focus on cash rich names with pricing power
Do not chase long duration if the dots signal only a shallow cutting path. A surprise in the statement could hit 10 year bonds hard.
Frequently Asked Questions
Q: Will the Fed cut rates tomorrow?
A: The committee is split, but a 25 basis point cut is in play. The tone of the statement and dots will matter more than the size.
Q: Why are mortgage rates rising if cuts are likely?
A: Mortgages track long term yields, not the Fed’s short rate. Long yields move on growth, inflation, and supply, which are uncertain today.
Q: What is the dot plot?
A: It is a chart that shows each official’s view of where policy rates should go over time. It guides markets on the likely path.
Q: Should I lock my CD now?
A: If you want today’s yield, yes. A cut and dovish dots could nudge CD rates lower in the weeks ahead.
Q: How should bond investors position?
A: Stay in short and mid maturities, add on volatility, and avoid overloading the long end until guidance is clearer.
The bottom line, the Fed is nearing the end of a hard year with a hard call. The decision is close, but the guidance will steer markets, mortgages, and savings into 2026. We will be live on the statement and Powell’s answers, and we will break what it means for your money within minutes.
