Equity markets sold off this week amid concerns about high tech-stock valuations and aggressive AI capital spending. As of writing, the tech-focused Nasdaq Composite was down 2.5% on the week, while the S&P 500 had declined 1.9%.

Official economic data began to trickle in, with September’s payroll report being the most notable. However, reporting backlogs are expected to persist. October payrolls will be released with November’s figures on December 16, not in time for the FOMC’s next meeting on December 9–10. Other data points, like October CPI, will not be released. On the housing side, existing home sales edged higher in October, supported by falling mortgage rates. Still, the housing market continues to tread water as affordability remains stretched, despite some modest improvement in recent months (Chart 1).

A busy slate of Fed speakers reaffirmed the lack of consensus among FOMC members for another rate cut in December. Some, like Governor Jefferson (voter), advocated for a cautious, “meeting-by-meeting approach,” as the policy rate moves closer to neutral. Chicago Fed President Goolsbee (voter) joined the hawkish camp, downplaying the recent labour-market weakness and emphasizing the lack of progress on inflation. 

Minutes from the October FOMC meeting also highlighted the growing divide, with many participants  seeing no case for easing in December. This contributed to market pricing shifting towards the next cut coming in January rather than December. After that meeting, Chair Powell stated that a December cut “is not a foregone conclusion, far from it.”

But policy doves like Governor Waller (voter), argued that another rate cut in December is warranted, given his assessment that the labor market remains weak, longer-term inflation expectations are anchored, and the impact of tariffs on inflation are likely to be transitory. Echoing this view, FOMC Vice Chair Williams emphasized that inflation expectations remain “very well anchored” and noted room for further cuts over the ‘near-term’. These remarks helped to tip market odds back in favour of a December cut on Friday morning. 

The delayed September payrolls report did little to reconcile the divide among policymakers. Hawks were likely reassured by the better-than-expected job gains: payrolls rose by 119k—the strongest reading since April (Chart 2). However, policy doves are likely to point to the negative revisions to prior months, the narrow concentration of job gains, and the uptick in the unemployment rate.

All in all, hawkish voters appear to outnumber the doves on the FOMC for now, and there is no official jobs or inflation data before the next meeting to shift views. Therefore, we expect the slow-and-steady approach to carry the day and for the Fed to hold rates steady in December. Chair Powell perhaps said it best: “when you’re driving in the fog, you slowdown”. That said, the door for a cut in January remains open.