Why Fed Should Not Cut in December
Available Dat Suggest No Reason For Easing
As the Federal Reserve approaches the December 9–10 meeting dates of the Federal Open Market Committee, an increasingly sharp internal debate has emerged over whether to pursue a third rate cut this year. Two key voting members — Federal Reserve Board Governor Christopher Waller, widely regarded as a potential successor to Chairman Jerome Powell, and Stephen Miran, recently elevated by President Trump to the Board of Governors—are expected to support another reduction in the Federal Funds rate. Miran has already been in the dissenting minority at the past two meetings, seeking a 50 basis point reduction in each case.
The probability of a December rate cut got a sudden boost yesterday when John Williams, President of the New York Fed, left open that possibility. “I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral,” Williams said at a conference in Santiago, Chile. He had not been considered a top candidate to become the next Chairman of the Federal Reserve but do not be surprised if he moves up in the ranks after his speech yesterday. President Trump is watching!
Williams’, Miran’s and Waller’s inclination toward accommodation is striking given the highly unusual data environment produced by the 43-day federal government shutdown which has left significant gaps in the Fed’s normal information set.
The October employment report is simply gone; the US Bureau of Labor Statistics has stated that the data were not collected and will never be released. What can be pieced together from the latest available information, however, provides no indication of a labor market in need of monetary stimulus.
Nonfarm payrolls rose by 119,000 in September — the strongest reading since April
This marks a substantial rebound from the 4,000 job loss in August.
The November job market report — originally scheduled for December 5 — will not be released until December 16, after the FOMC meets, leaving policymakers to act without a full understanding of the latest labor dynamics. Would they still wish to ease policy on December 10 with three-month old data?!
Nothing in the September data signals a labor market weakening enough to justify additional easing despite the slight increase in the unemployment rate to 4.4% from 4.3% in August. Counteracting the rise in the jobless rate was the increase in the participation rate from 62.3% in August to 62.4% in September.
The inflation picture is similarly clouded by missing data. October CPI figures were not collected and will never be available. But what is known is troubling:
September headline consumer prices increased by 3% year-over-year
Core CPI — that excludes food and energy — also rose 3%
Both inflation rates remain significantly above the Fed’s 2% target, warranting a tightening rather than easing
In other words, the most recent official data show inflation still running too hot, not cooling toward the desired range.
If the economic fundamentals argue against easing, financial markets tell an even clearer story. Equities—particularly the rate-sensitive tech sector—have undergone a sharp correction in the past week. NASDAQ’s big decline through Thursday night — before the Williams comment pushed equities up yesterday — signals that markets had aggressively priced in further monetary loosening. That raises an important policy question:
Is it the Federal Reserve’s job to validate market hopes for cheaper money—especially when inflation is elevated and the labor market remains resilient? Propping up asset prices is not part of the Fed’s mandate. Yet cutting rates in December would effectively reward speculative behavior that surged on expectations of continued accommodation.
The Fed is being asked to make a significant decision with incomplete and asymmetric data, much of which will become available only after the meeting. The central bank has already cut rates twice this year. There is no compelling evidence—in labor markets, inflation trends, or real-economic indicators—to justify going further right now.
In fact, cutting into a backdrop of still-firm inflation and robust job creation risks appearing reactive to market sentiment rather than providing responsible macroeconomic stewardship. That is the last thing the Fed should do if it cares about its long-term credibility.
The prudent choice is to hold.
The Federal Reserve’s raison d’être ought to be its commitment to the data and its mandates—not the desires of a stock market that has been conditioned to expect perpetual monetary support.
Dr. Komal Sri-Kumar
President, Sri-Kumar Global Strategies, Inc.
Santa Monica, California
www.srikumarglobal.com
@SriKGlobal
November 22, 2025
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