Feds’ Easing Cycle Far from Over, Says Wells Fargo
Expected Rate Cut is Part of an Ongoing Recalibration, Not a Final Cut
The Federal Reserve’s December meeting will likely be a contentious affair, with multiple dissents anticipated on what is widely expected to be a rate cut. However, it remains unlikely that this move will mark the end of the easing cycle. The data backdrop still points to further cuts ahead, rather than a one-and-done pivot, according to Wells Fargo.
Widespread Expectations of a Rate Cut
The latest labor market data suggests that conditions have continued to slowly soften, while inflation shows few signs of bubbling up further. In fact, the unemployment rate has reached 4.4%, which is above the Committee’s central tendency range for ‘maximum employment’. Similarly, PCE inflation running at 2.8% on both a headline and core basis underscores the relatively stable inflationary environment. Meanwhile, nonfarm payrolls growth firmed in September, but not enough to shift the underlying outlook.
Wells Fargo’s Analysis of the Rate Decision
According to Wells Fargo economists, the interest-rate decision will be accompanied by an updated summary of economic projections that will likely reinforce the case for further easing beyond December. The adjustments to the 2025 SEP will probably be in the direction of higher unemployment and lower inflation – a combination that is consistent with another 25 bps rate cut at this meeting.
A Dovish Backdrop
Looking ahead to 2026, Wells Fargo believes that the SEP medians are more likely to drift up a tenth or so for GDP growth and the unemployment rate while edging down a tick for inflation. However, there are risks to the 2026 fed funds median dot if these trends are confirmed, with the potential for it to be skewed further downwards. The expected rate cut is part of an ongoing recalibration, not a final cut.
FOMC Divided Ahead of December Meeting
The FOMC is increasingly split, with "multiple dissents" anticipated in December. Wells Fargo expects that the Fed will manage dissent by serving up a more hawkish post-meeting statement that would raise the bar to additional rate cuts. This could even involve hinting that a hold in January is the base case, despite the underlying projections pointing toward higher unemployment and lower inflation over time.
The Interest-Rate Decision is Part of an Ongoing Process
Wells Fargo’s economists forecast that the median dot for the 2026 fed funds rate will remain at 3.375% for now. However, they caution that it would only take one participant moving their dot lower for the median to fall. This mixed backdrop means that December’s move is part of an ongoing process of recalibration – rather than a final cut.
Uncertainty Looms Ahead
The data suggests that while inflation remains under control, and job growth continues, there are still underlying risks lurking in the shadows. The risks to the 2026 median dot remain skewed to the downside for now, according to Wells Fargo. As such, we can expect this ongoing process of rate cuts to continue beyond December.
Conclusion
The Federal Reserve’s decision on rates in December is a significant event that will set a precedent for future policy decisions. While widespread expectations point to another 25 bps rate cut at the meeting, it remains unlikely that this move will mark the end of the easing cycle. Instead, the data suggests that further cuts are still needed due to higher unemployment and lower inflation projections over time.
Further Analysis
As such, investors and analysts alike should not only be paying close attention to what the FOMC decides but also remain vigilant about future policy decisions in the coming months.
Feds’ Easing Cycle Far from Over, Says Wells Fargo
Expected Rate Cut is Part of an Ongoing Recalibration, Not a Final Cut
The Federal Reserve’s December meeting will likely be a contentious affair, with multiple dissents anticipated on what is widely expected to be a rate cut. However, it remains unlikely that this move will mark the end of the easing cycle. The data backdrop still points to further cuts ahead, rather than a one-and-done pivot, according to Wells Fargo.
Widespread Expectations of a Rate Cut
The latest labor market data suggests that conditions have continued to slowly soften, while inflation shows few signs of bubbling up further. In fact, the unemployment rate has reached 4.4%, which is above the Committee’s central tendency range for ‘maximum employment’. Similarly, PCE inflation running at 2.8% on both a headline and core basis underscores the relatively stable inflationary environment. Meanwhile, nonfarm payrolls growth firmed in September, but not enough to shift the underlying outlook.
Wells Fargo’s Analysis of the Rate Decision
According to Wells Fargo economists, the interest-rate decision will be accompanied by an updated summary of economic projections that will likely reinforce the case for further easing beyond December. The adjustments to the 2025 SEP will probably be in the direction of higher unemployment and lower inflation – a combination that is consistent with another 25 bps rate cut at this meeting.
A Dovish Backdrop
Looking ahead to 2026, Wells Fargo believes that the SEP medians are more likely to drift up a tenth or so for GDP growth and the unemployment rate while edging down a tick for inflation. However, there are risks to the 2026 fed funds median dot if these trends are confirmed, with the potential for it to be skewed further downwards. The expected rate cut is part of an ongoing recalibration, not a final cut.
FOMC Divided Ahead of December Meeting
The FOMC is increasingly split, with "multiple dissents" anticipated in December. Wells Fargo expects that the Fed will manage dissent by serving up a more hawkish post-meeting statement that would raise the bar to additional rate cuts. This could even involve hinting that a hold in January is the base case, despite the underlying projections pointing toward higher unemployment and lower inflation over time.
The Interest-Rate Decision is Part of an Ongoing Process
Wells Fargo’s economists forecast that the median dot for the 2026 fed funds rate will remain at 3.375% for now. However, they caution that it would only take one participant moving their dot lower for the median to fall. This mixed backdrop means that December’s move is part of an ongoing process of recalibration – rather than a final cut.
Uncertainty Looms Ahead
The data suggests that while inflation remains under control, and job growth continues, there are still underlying risks lurking in the shadows. The risks to the 2026 median dot remain skewed to the downside for now, according to Wells Fargo. As such, we can expect this ongoing process of rate cuts to continue beyond December.
Conclusion
The Federal Reserve’s decision on rates in December is a significant event that will set a precedent for future policy decisions. While widespread expectations point to another 25 bps rate cut at the meeting, it remains unlikely that this move will mark the end of the easing cycle. Instead, the data suggests that further cuts are still needed due to higher unemployment and lower inflation projections over time.
Further Analysis
As such, investors and analysts alike should not only be paying close attention to what the FOMC decides but also remain vigilant about future policy decisions in the coming months.