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The market is pricing in a sure thing.
According to the CME FedWatch tool, the probability of the Federal Open Market Committee announcing a 25-basis-point rate cut this Wednesday stands at 100%. Not 99.7%, not 99.9%, but a clean, unambiguous 100%. Futures markets, which are about as unsentimental as it gets, have spoken. They are telling us that when Jerome Powell steps to the podium at 2:30 PM ET, a cut to a 3.75%-4.00% federal funds target range is a foregone conclusion.
This level of certainty is rare. It suggests a consensus built on an ironclad case for monetary easing. The narrative is that with inflation cooling to a 3% annual pace last month, the Fed has the green light it needs to support a softening labor market and a slowing economy. The market has already moved on to pricing in the next cut, assigning a 90% chance of another -25 bp move in December.
On the surface, it’s a simple, logical sequence. But when you look past the headline probabilities, the foundation for this monolithic consensus appears less like solid granite and more like loosely packed sand. The data points underpinning this decision are a chaotic mix of conflicting signals, obscured reports, and political noise. And this is the part of the analysis that I find genuinely puzzling: the market's conviction seems to be inversely correlated with the clarity of the available information.
The Data Paradox
Let's dissect the inputs. The argument for a cut hinges primarily on the idea that the economy needs support. Yet, the data that has managed to trickle out paints a picture of resilience, not distress. The August FHFA house price index rose +0.4% month-over-month, handily beating expectations of a -0.1% decline. The S&P Case-Shiller index showed similar strength. The October Richmond Fed manufacturing index, while still negative, jumped 13 points to -4, crushing expectations of a modest rise to -12. Even consumer confidence, though slightly down, came in stronger than forecast.
These are not indicators of an economy on the brink of collapse. They suggest that certain sectors are holding up surprisingly well. Why, then, the rush to cut?
The corporate earnings season offers another layer of complexity. With 173 of the S&P 500 companies reporting this week, the results have been strong—to a point. According to Bloomberg Intelligence, 84% of companies that have reported so far have beaten forecasts, a remarkable figure. But look closer. The aggregate Q3 profit growth is expected to be around 7%—to be more exact, +7.2% year-over-year, the smallest increase in two years. Sales growth is also projected to decelerate. This is the classic late-cycle tell: companies are exceeding lowered expectations, but the underlying trend is one of slowing momentum. Is the Fed cutting rates to prop up a market that's running out of organic growth, or is it responding to a genuine economic threat? The data doesn't provide a clear answer.
This brings us to the elephant in the room, or rather, the elephant that’s been locked out of the room. The U.S. government shutdown, now grinding into its fifth week, has created an information vacuum at the worst possible moment. The market is functioning without official reports on September unemployment, retail sales, industrial production, and a host of other critical metrics. The Fed is being asked to make a monumental policy decision while effectively blindfolded.
Flying with a Blacked-Out Instrument Panel
A central banker's job is often compared to that of a pilot, making subtle adjustments to guide the economy to a soft landing. Right now, Jerome Powell is trying to land a 747 in a storm with half his instrument panel dark. The government shutdown has blacked out the most critical gauges—the ones that measure the labor market. The Fed has its inflation altimeter (reading 3%), but it has no reliable measure of its employment airspeed or its consumer spending trajectory.
Powell has acknowledged this data halt, stating the central bank has access to "a wide variety of public- and private-sector data that have remained available." This is a necessary, but ultimately unconvincing, piece of reassurance. What private-sector data? Payroll processing reports? Credit card transactions? This information can be useful, but it lacks the statistical rigor and historical consistency of the Bureau of Labor Statistics reports. It’s a proxy, and a potentially flawed one at that. Bloomberg Economics estimates that 640,000 furloughed federal workers could push the unemployment rate up to 4.7%. Is that a temporary blip or the start of a trend? Without the official data, it's impossible to know.
This decision to cut rates, therefore, feels less like a data-driven maneuver and more like an insurance policy against the unknown. The Fed is cutting not because it has a clear view of gathering economic clouds, but precisely because it has no view at all. The fog is too thick. In this scenario, the perceived risk of doing nothing and being wrong outweighs the risk of easing and discovering later that it was unnecessary.
The market’s certainty is built not on evidence, but on the logical assumption that the Fed will choose the path of least regret when faced with total uncertainty. This is compounded by the expectation that the FOMC will also announce an end to its quantitative tightening (QT) program, a move that would directly inject liquidity into the financial system. For traders, a rate cut plus the end of QT is an unambiguous "buy" signal, regardless of the messy reasoning behind it. But what does it say about the true health of the economy when its central bank has to make policy based on guesswork?
A Calculated Guess, Not a Conviction
When the announcement comes on Wednesday, the market will likely get the rate cut it has so confidently priced in. The headlines will read that the Fed has acted to support the economy. But the real story is far more unsettling. We are witnessing a major policy shift based on incomplete, contradictory, and largely absent data.
The market is interpreting this impending cut as a sign of a proactive, responsive Federal Reserve. My analysis suggests it should be seen as the opposite: a defensive, uncertain institution forced to act because it can no longer see the road ahead. This isn't a confident step forward; it's a tentative shuffle in the dark. The real risk isn't that the Fed fails to cut. The risk is what happens when the government reopens, the data blackout ends, and we finally see what the economy actually looks like. We may find that the Fed just administered stimulus to a patient who didn't need it, at the precise moment it could least afford a policy error.