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Markets rethink December rate cut amid Fed doubts

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9 months ago

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Federal Reserve Chair Jerome Powell speaks during a news conference following a meeting of the Federal Open Market Committee at the Federal Reserve on Oct. 29, 2025 in Washington, DC.

Alex Wong | Getty Images

Federal Reserve Chair Jerome Powell wasn’t kidding a couple weeks ago when he said a December rate cut wasn’t in the bag.

Recent remarks from Powell’s colleagues point to plenty of apprehension over whether the central bank should deliver its third consecutive easing of policy when it meets Dec. 9-10.

As a result, markets have recalibrated their expectations. Whereas traders as recently as a few days ago were pricing in at least a 2-to-1 probability of a quarter percentage point cut, that’s now flipped to a coin toss, according to futures markets readings tabulated by the CME Group in its FedWatch tool.

“These developments chip away at our confidence the Fed will cut in [December] without giving us any more confidence a skip to [January] is a better bet,” Krishna Guha, head of global policy and central bank strategy at Evercore ISI, said in a note. “This leaves us still seeing a [December] cut more likely than not but only 55-60 per cent.”

As of Thursday afternoon, the implied probability of a rate cut was at 49.4%, according to the CME gauge that uses prices on 30-day fed funds futures contracts to interpolate probabilities for rate moves. Futures prices pointed to a funds rate of 3.775% by the end of 2025, compared to the current level of 3.87%.

A month ago, the market was assigning a 95% probability of a reduction.

So what changed? Primarily, uncertainty at a time when the official data flow came to a halt due to the now-resolved government shutdown. Some Fed officials worry about flying blind on data at a time when the most recent readings point to a softening labor market but inflation that, while ebbing slightly, is still considerably above the Fed’s 2% target. Moreover, White House press secretary Karoline Leavitt said Wednesday that some of the data, particularly for October, may never come out.

An unexpected voice

Those reservations showed up in an uncharacteristically blunt assessment Wednesday from Boston Fed President Susan Collins.

During her time with the Fed, Collins has used cautious language to express her opinion on policy. But a speech she delivered in her home district left little doubt regarding her misgivings about inflation and the importance of the Fed to hold steady, at least for now, until there’s greater economic clarity.

“Given my baseline outlook, it will likely be appropriate to keep policy rates at the current level for some time to balance the inflation and employment risks in this highly uncertain environment,” Collins said. “I see several reasons to have a relatively high bar for additional easing in the near term.”

Market rally doesn't need a Fed rate cut in December, says Bank of America's Chris Hyzy

A central part of her case is that the economy generally looks solid even with the slowdown in hiring. Cutting rates more, Collins reasoned, risks pushing inflation higher at a time when the impact from tariffs is still uncertain.

“The current level of policy rates, in my view, leaves policy well positioned to address a range of potential outcomes and balance risks on both sides of our mandate,” she said, referring to the Fed’s dual mandate to maximize employment and keep prices stable.

Collins’ position puts her in a hawkish group that includes regional presidents Jeffrey Schmid of Kansas City who, unlike Collins, voted against the October cut, along with Beth Hammack of Cleveland and possibly Alberto Musalem of St. Louis and Lorie Logan in Dallas.

On the opposite side of the rate fence are Governors Stephen Miran who, in his two meetings, has voted against quarter-point cuts in favor of half-point reductions, as well as Christopher Waller and Michelle Bowman.

Chair Powell, then, is left to build consensus following his comments after the October rate cut that “a further reduction in the policy rate at the December meeting is not a foregone conclusion—far from it.” There is no Fed policy meeting in November.

Taking sides

As markets grew less confident about a December cut, stocks slumped Thursday while Treasury yields moved higher.

Powell’s dilemma at a time of uncharacteristic dissent on the Federal Open Market Committee is intensifying.

“We do not think Powell wants the Committee to break apart deeply and publicly with mass hawkish
dissents at this institutionally perilous moment,” Guha said. “This in our view is why he and his top deputies [FOMC Vice Chair Philip] Jefferson and [New York Fed President John] Williams have adopted a conciliatory posture, respecting hawks’ arguments and insisting the market view [December] as a 50-50 call.”

One middle ground for the Powell would be a “hawkish cut,” in which the committee would agree to one more reduction while the chair communicates that further moves lower are unlikely. The FOMC’s makeup changes in January when a new crop of regional presidents will move into voting roles, and as Powell’s term as chair nears its end in May. Gone will be hawks like Collins and Schmid, though both Hammack and Logan will move into voting roles.

“With all this in mind, we think that it is possible that Powell is forced into a compromise by which the Fed either (1) stays on hold in December, or (2) if it does cut, is obligated subsequently to signal that the rate cutting cycle may be over,” wrote Thierry Wizman, global FX and rates strategist at Macquarie Group.

Traders are anticipating the committee softens its stance come January. Futures pricing indicates about a 70% probability of a cut to kick off the new year should the FOMC decide to skip December.

Difficult to build rationale to lower rates at this point, says former Minneapolis Fed president

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Private Credit Expansion and Regulatory Oversight in 2026 Capital Markets

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5 days ago

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August 9, 2026

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The global private credit market has solidified its role as a fundamental pillar of enterprise finance, expanding rapidly across middle-market lending, asset-backed finance, and infrastructure financing. As non-bank financial institutions capture a larger share of corporate debt origination, global regulatory bodies are increasing oversight to evaluate market transparency and systemic risk interconnections.

Growth Drivers in Direct Lending
Direct lending platforms have continued to attract substantial institutional allocations from pension funds, sovereign wealth entities, and insurance companies seeking attractive risk-adjusted yields. Private debt funds offer corporate borrowers customized financing structures, faster execution timelines, and confidentiality compared to syndicated loan markets.

In 2026, private credit managers are increasingly financing larger corporate transactions, providing multi-billion-dollar credit facilities for buyout deals and corporate restructurings. The flexibility of private debt contracts—featuring unitranche pricing and tailored covenant packages—has made direct lending the preferred capital source for middle-market enterprise sponsors.

Regulatory Scrutiny and Systemic Risk Assessment
The rapid growth of non-bank intermediation has drawn heightened scrutiny from financial regulators in North America and Europe. Because private debt agreements are negotiated privately without public exchange disclosures, central banks are evaluating potential vulnerabilities related to asset valuation consistency and fund liquidity profiles.

Regulatory agencies are introducing guidelines aimed at improving reporting standards for private investment vehicles managing institutional assets. Key focus areas include monitoring leverage ratios within private credit funds and evaluating indirect credit exposures between commercial banking institutions and private debt funds.

Navigating Elevated Refinancing Costs
With benchmark interest rates remaining elevated, private debt borrowers face higher debt service obligations on floating-rate credit facilities. Financial advisory firms report an increase in proactive liability management strategies, including payment-in-kind (PIK) interest options, equity infusions from sponsors, and covenant modifications.

Private credit managers with deep operational capabilities are actively working alongside portfolio companies to optimize working capital and maintain cash flow coverage ratios during periods of higher borrowing costs.

Key Financial Takeaways
1. Mainstream Asset Class: Private credit has expanded beyond niche alternative asset status into a core corporate finance solution.
2. Enhanced Transparency Standards: Regulatory frameworks are evolving toward greater disclosure requirements for private debt managers.
3. Proactive Risk Management: Lenders and sponsors must prioritize debt sustainability and active portfolio monitoring amid high benchmark rates.

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Finance

Venture Capital and Startup Valuations in 2026: Focus on Unit Economics and Sustainable Growth

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1 week ago

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August 5, 2026

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The global venture capital (VC) ecosystem is operating under a disciplined investment framework in 2026. Following years of valuation adjustments and shifting liquidity environments, venture capital firms and private equity investors are prioritizing proven unit economics, positive cash flow pathways, and capital efficiency over rapid, unconstrained user acquisition.

The Shift Toward Disciplined Startup Valuations
Early-stage and growth-stage startup valuations have stabilized at sustainable historical averages. Venture capital partners are conducting rigorous due diligence processes before deploying capital, scrutinizing gross margins, customer acquisition costs (CAC), net revenue retention (NRR), and lifetime value (LTV) metrics.

While total capital deployed remains robust, seed and Series A funding rounds are taking longer to finalize. Founders are expected to demonstrate clear product-market fit and defensible intellectual property rather than relying on top-line revenue projections unsupported by strong underlying economics.

M&A Activity and Liquidity Solutions
The market for venture-backed exits is seeing renewed momentum through strategic mergers and acquisitions (M&A) and secondary market liquidity facilities. Established corporate enterprises are acquiring high-performing technology startups to integrate proprietary artificial intelligence models and specialized software solutions into their product ecosystems.

Simultaneously, secondary market transactions have become an essential liquidity mechanism for early employees and institutional investors. Specialized secondary funds are purchasing pre-IPO shares at discounted valuations, providing liquidity opportunities while companies remain private for longer durations.

Sector Allocation: Deep Tech, Clean Energy, and Enterprise Automation
Venture capital investment is heavily concentrated in deep technology and capital-intensive engineering sectors. High-growth investment themes include:
– Next-Generation Semiconductors: Hardware startups designing specialized AI processors and energy-efficient microchip architectures.
– Clean Technology: Battery chemistry innovations, carbon capture solutions, and grid-scale energy storage startups.
– Enterprise Process Automation: Software platforms that automate complex workflows in healthcare, financial services, and industrial logistics.

Key Insights for Entrepreneurs and Investors
1. Prioritize Capital Efficiency: Startups focused on achieving operational profitability receive higher valuation premiums from institutional investors.
2. Strategic Exit Planning: Corporate M&A is serving as a primary exit route for venture-backed startups navigating prolonged IPO windows.
3. Focus on High-Moat Technologies: Deep tech and proprietary software architectures are securing the majority of growth-stage capital allocations.

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Finance

The Evolution of Digital Payments: Cross-Border Settlement and Central Bank Digital Currencies in 2026

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1 week ago

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August 5, 2026

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The infrastructure supporting global commerce is undergoing a major technological upgrade as real-time digital payment rails, cross-border settlement solutions, and Central Bank Digital Currency (CBDC) pilot programs achieve widespread commercial adoption. Financial institutions and fintech developers are reimagining payment processing to eliminate friction, lower transaction fees, and accelerate settlement speed.

Transforming Cross-Border Settlement Infrastructure
For decades, international corporate payments relied on legacy correspondent banking networks characterized by multi-day settlement delays, opaque fee structures, and high foreign exchange markups. In 2026, modern cross-border payment networks are enabling near-instantaneous settlement for international trade transactions.

Financial technology platforms are leveraging distributed ledger technology and real-time gross settlement (RTGS) interconnections to settle transactions in seconds. International trade participants benefit from reduced working capital requirements and minimized foreign exchange volatility risks during cross-border transfers.

Commercial Expansion of Central Bank Digital Currencies
Central banks representing major global economies are advancing CBDC initiatives from research phases into active commercial deployment. Wholesale CBDCs—designed specifically for interbank settlement and financial institution clearing—are demonstrating substantial efficiency gains in domestic and international transactions.

At the retail level, several nations have introduced public digital currency options alongside existing commercial banking networks. These sovereign digital payment channels aim to expand financial inclusion, lower consumer transaction fees, and improve the efficiency of government-to-citizen financial disbursements.

Open Banking and Embedded Finance Ecosystems
Alongside settlement infrastructure upgrades, open banking regulations and embedded finance frameworks are transforming merchant-consumer interactions. Commercial businesses across retail, travel, and business-to-business (B2B) services are integrating seamless payment APIs directly into their customer software interfaces.

Through open banking frameworks, consumers can initiate secure bank-to-bank payments without relying on traditional credit card networks, significantly reducing merchant processing fees. Integrated Buy-Now-Pay-Later (BNPL) options and point-of-sale credit facilities continue to expand, driving higher conversion rates for digital commerce platforms.

Strategic Financial Takeaways
1. Treasury Optimization: Corporate treasurers should leverage instant cross-border payment platforms to minimize liquidity buffers and foreign exchange exposure.
2. CBDC Integration: Financial institutions must prepare internal core banking systems to interface with emerging wholesale CBDC payment rails.
3. Merchant Fee Reduction: Enterprise merchants can lower payment processing overhead by adopting account-to-account (A2A) open banking checkout solutions.

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