There is still huge uncertainty about Trump's policies! The Fed's interest rate cut in December may be questionable

Since there is still uncertainty about how US President-elect Trump's policy intentions will affect key areas of the US economy, the Fed's interest rate cut in December doesn't seem to be a foregone conclusion.

According to CME's US Federal Reserve Watch Tool, traders believe that the probability that the Federal Reserve will lower the benchmark interest rate at the December 17-18 meeting is barely 50%. A few weeks ago, this implied probability of over 80% was almost a matter of course.

What has really changed in just a few weeks?

The main reason is that the market is still speculating on the extent to which Trump's victory and his policies will stimulate the economy and drive up inflation.

The current situation and questions about unknown factors have led the strategists at Schwab Wealth Management to call on the Federal Reserve to suspend action next month and wait and see how things unfold. Kathy Jones, chief fixed income strategist at Carson Wealth Management, said last week, “Right now, I think uncertainty is at a very high level, everything is changing, and it may be moving in many different directions. I think the Federal Reserve should probably pause, take a break, and say, 'You know, we need to sit back and watch how things unfold. '”

For her part, Jones said she will be watching the US Federal Reserve November meeting minutes released on Wednesday to find more clues about policymakers' intentions.

Jones's colleague Liz Ann Sonders, who is in charge of stocks at Carson Wealth Management, agreed and stated that it is difficult for business leaders to separate noise from reality. “If you're a business leader and you're trying to plan, then you have to wait and see to deal with policies like immigration and tariffs.”

Sonders said, “So I think we may be at a standstill in cyclical activity as companies wait for policy proposals to become actual policies.”

Trump announced on Friday that he will nominate hedge fund executive Bezent as Treasury Secretary. In a recent interview, Bezent advocated gradual implementation of tariffs and insisted that Trump had no intention of driving up inflation.

Despite this, market-based measures of inflation are rising. The 5-year break-even interest rate is just below its highest level in a year, and US Treasury yields are still far higher than when the Federal Reserve began cutting interest rates in September.

As investors continued to weigh the prospects of the Federal Reserve's policies, Monday's market rally also lost some momentum. The S&P 500 Index and the Nasdaq Composite Index had regained early gains of around 65% to 75% by the day's close. Saunders said, “It's hard to refute claims that tariffs will slow growth and drive up inflation. In the extreme case of the proposed proposals, they are highly inflationary, and when you consider all of these factors, you can say why the Fed needs to act now, especially when there is so much uncertainty about how future policies will affect inflation.”