Federal Reserve Chair Jerome Powell recently compared the central bank’s current predicament to "driving in the fog". As policymakers head into their December meeting, that fog has thickened into a blinding whiteout, and the passengers are starting to scream at the driver.
The Federal Reserve is currently grappling with a "triple threat" scenario: sticky inflation hovering above 3%, a softening labour market obscured by missing data, and unprecedented political pressure from the White House.
The tension is palpable. While the committee delivered a 25 basis point cut in October, the consensus has since fractured, leaving investors and the crypto market guessing the next move.
The Shadow Chair Speaks
The political temperature spiked significantly on Thursday with comments from Kevin Hassett, who bookmakers predict will be President Trump's nominee to replace Powell as Fed Chair.
Breaking with the tradition of silence for incoming nominees, Hassett explicitly warned that pausing rate cuts in December would be "a very bad time" for the economy. He argued that the recent government shutdown could drag Q4 GDP down by 1.5 percentage points, and that pausing now would "exacerbate the economic downturn."
Hassett’s intervention effectively creates a "Shadow Fed," where the future Chair is openly lobbying against the current policy path.
The Civil War Within
Inside the building, however, the mood is shifting decisively in the opposite direction. A growing chorus of officials is urging the committee to hit the brakes.
Fed Governor Michael Barr sounded the alarm on Thursday, expressing deep concern that inflation remains stuck at 3%. "Monetary policy needs to be carefully formulated... inflation needs to be restored to 2%," Barr stated.
He is backed by Cleveland Fed President Beth Hammack, who warned that further rate cuts could not only prolong high inflation but also "encourage risky behavior in financial markets," a coded warning to asset classes like crypto that thrive on loose money.
This hawkish bloc stands in stark contrast to the "Team Cut" camp, supported by Goldman Sachs. Kay Haigh, Goldman’s global co-head of fixed income and liquidity solutions, argued this week that "a December cut remains possible given continued labor market softness as expressed by the unemployment rate," keeping the door for a December cut firmly open.
Flying Blind on Data
The debate is complicated by the fact that the Fed is flying blind. The recent government shutdown forced the Bureau of Labor Statistics (BLS) to halt the publication of key data.
The October jobs report will not be released at all, and the November report is delayed until December 16, after the FOMC meets. This leaves policymakers reliant on a patchwork of secondary data while trying to navigate a "soft landing."
The Market U-Turn
The combination of hawkish internal rhetoric and the confusing data void has triggered a violent repricing in the markets.
Just one week ago, traders saw a roughly 60% chance of a rate cut. That sentiment has inverted. CME FedWatch data now shows a 66.3% probability that the Fed will hold rates steady, with prediction markets like Polymarket echoing this skepticism at 68%.
Crypto in the Crossfire
For the crypto market, the stakes are high.
If the "Team Pause" faction (Barr, Hammack, Bostic) wins the argument in December, financial conditions will remain tight, strengthening the dollar and dampening the liquidity that fuels Bitcoin and DeFi assets.
However, if the "Political" faction prevails, a cut could reignite the "reflation trade," potentially spiking risk assets higher.
With the FOMC entering its blackout period next week, the market is left to parse the signals alone. The fog is thick, the map is missing, and there are now two hands fighting for the steering wheel.
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