Round trip

Just two weeks left of the last FOMC meeting of 2025, and the market has flippped the odds of a cut once again. And the round trip has happened within November. With no data on inflation and unemployment to make informed decisions, investors feared the Fed was not going to venture into additional cuts with the risk of increasing inflation. Then a 150 years study on tariffs effect on inflation by the San Francisco Fed popped up, providing some tehnical background supportive of cuts, and finally, on Friday, New York Fed President John Williams said he still saw “room for a further adjustment in the near term, to move the stance of policy closer to the range of neutral.” And the probability of a cut went from 30% to 70%, and now it’s comfortably at 78%, which implies a cut from the Fed. The sudden market correction last week and the tension created in some risky assets (like Bitcoin) perhaps showed the Fed what a pissed market can do to get what it wants. The 2 years Treasury yield, one of the best predictors of aged funds, is now at 3.48%, consistent with the odds the market is discounting. Everything points to a cut.

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