A 25 bp Cut Is Nearly Priced In — But FOMC More Divided Than Ever

As trading floors close on December 4, 2025, one outcome looks almost inevitable: the Federal Reserve will cut its benchmark rate by a quarter point next week, lowering the target range to 3.50%–3.75%. Futures markets are assigning better than an 84% probability to that move — a complete about-face from mid-November when the odds barely topped 20%. A perfect storm of softening employment data, dovish signals from influential policymakers, and the quiet conclusion of quantitative tightening has driven the repricing, yet beneath the surface calm the Federal Open Market Committee is heading into what could be its most contentious meeting in years.

The turning point came in late November when two of the Fed’s most respected centrists publicly opened the door to further easing. Their comments triggered an instant surge in rate-cut expectations that has never looked back. Since then, nearly every major Wall Street research desk has fallen into line: forecasts now call for a December cut followed by another 50–55 basis points of easing through 2026, taking the policy rate toward 3% or slightly lower.

Two technical milestones have quietly removed important headwinds. On December 1, the Fed officially ended the runoff of its Treasury portfolio, halting a process that had drained more than $1.9 trillion of liquidity from the system since mid-2022. At almost the same moment, the longest government shutdown in history forced the postponement of the November jobs report until December 16 — leaving policymakers unusually blind to the latest hard employment numbers as they prepare to vote.

This week delivered a fresh dose of mixed but ultimately dovish labor-market evidence. Private payrolls unexpectedly contracted by 32,000 in November — the worst drop since early 2023 — while weekly jobless claims plunged to their lowest level since September 2022. The conflicting signals reinforce the now-familiar “low-hire, low-fire” dynamic: companies are freezing headcount rather than aggressively laying off workers, a pattern that keeps the unemployment rate stable but also keeps the economy from overheating.

Friday’s October Personal Consumption Expenditures report — the Fed’s preferred inflation gauge — lands tomorrow morning and has become the last major wildcard before the blackout period. Economists look for core PCE to hold steady at 2.9% year-over-year. A downside surprise would cement the case for easing and could push the implied probability above 90%; an upside surprise, however, would hand ammunition to the growing camp inside the Fed that believes inflation progress has stalled and further cuts risk unanchoring expectations above 2%.
That camp is larger and more vocal than markets seem to appreciate.

Minutes from the October meeting revealed a committee split along lines not seen since the Volcker era, with several participants explicitly arguing against any additional accommodation this year.

Analysts now warn of three to five formal dissents next week — a rarity in the modern Fed — which could muddy the communication of even a widely anticipated decision.

In short, the market has already declared victory on a December cut, buoyed by the end of quantitative tightening, a dovish shift from the center of the committee, and a string of labor reports that lean toward caution. But when policymakers gather in six days, the real drama will not be the size of the move — it will be how visibly fractured the Federal Reserve has become, and whether it can still speak with one voice as fiscal stimulus and possible trade tariffs loom on the 2026 horizon.