Ombretta De Marco @Ombrettademarco: "🔎 FED PLOT TWIST —..."

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🔎 FED PLOT TWIST — WHY MARKETS ARE SUDDENTLY PRICING A DECEMBER RATE CUT AND WHAT IT MEANS Over the past ten days, we’ve seen one of the sharpest sentiment reversals in the macro landscape. From “no more cuts in 2025” to “83% probability of a cut already in December.” A complete turnaround from late October. Let’s break down why it happened, what the Fed is really looking at, and how markets are reacting. 📌 1. The turning point: the labor market is sending a clear message The Fed keeps repeating a simple principle: If the labor market weakens, we must step in. Recent data added three key signals: Unemployment at 4.4% Still solid, but the highest since 2021. For the U.S., that matters. Downward revisions to August hiring numbers A classic softening signal, the one Powell watches most closely. No October data available (shutdown impact) Translation: the Fed is flying blind. When visibility drops, policy mistakes become more likely → and the FOMC tends to avoid being overly restrictive. 🧭 2. Williams and Daly shift the narrative Two of the most influential voices inside the Fed, John Williams (NY Fed) and Mary Daly (San Francisco Fed), openly signaled support for a near-term cut. This is notable because: they are historically aligned with Powell, known for their cautious tone; they don’t signal lightly, when figures like these speak, they’re relaying an internal shift. Powell hasn’t fully endorsed it yet, but the change is unmistakable: the “inflation-first” camp is no longer dominating. 📉 3. Why cut now? Because inflation is no longer the main threat Inflation is still above target, but it is: cooling, predictable, and far less dangerous than a weakening labor market. Powell emphasized this point: “We cannot fight inflation and economic weakness simultaneously. Our tools don’t allow it.” When forced to choose, the Fed always chooses growth. Especially with policy rates still at 20-year highs. 📈 4. Market reaction: risk assets breathe again U.S. Equities Major indices reacted immediately: $SPX500 ↑ $NSDQ100 ↑ $DJ30 ↑ $RTY recovering strongly Small caps are highly rate-sensitive → a rally here is often a leading indicator that markets believe the cut is real. Europe & Asia Both regions are in the green, with Asia benefiting from: a softer dollar, improving global risk appetite. Crypto A modest but positive reaction: $BTC rebounded from $82k → $88k Altcoins improved slightly, but weekly performance remains soft. Volatility is still compressed, but a December cut could be the trigger that unlocks momentum. 🧠 5. What this means for the December FOMC The CME FedWatch Tool now prices an 83% probability of a 25bps cut in December. Just a week ago: 30%. This isn’t merely sentiment shifting, it’s a structural change in how the Fed is assessing economic risks. The Fed does not want to spark a recession by staying overly tight. When internal communication changes, markets detect it instantly. 🟢 6. My focus for the next weeks Here’s the macro checklist I’m monitoring: Labor market data → today’s main driver. Unemployment → a move above 4.5% would be significant. Powell’s next statements → if he confirms Williams’ tone, 83% becomes 90%+. U.S. small caps → the most sensitive barometer to rate expectations. DXY and 2-year yields → crucial for equities and crypto momentum. Markets have already started pricing in the cut. Now the ball is in the Fed’s court. The December meeting will be one of the most impactful events of the year.

5 Mentioned

SPX500

NSDQ100

DJ30

RTY

BTC

Bitcoin

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