Can Fed FOMC minutes Hold Market Consensus Of Two Rate Cuts Before Year-End? Or Go Further? Read On!

Fed FOMC minutes amid shutdown, and we are hearing report that Fed is set to drive global rate cuts as Europe shifts to pause. Market consensus of two more rate cuts before year-end remain in play, but will FOMC minutes hold this consensus or Fed is ready to go further.

Here is a refined view on whether the consensus of two more Fed rate cuts by year-end is likely — and how the shutdown complicates things:

What the Fed just signaled & market expectations

• At the September meeting, the Fed cut rates 25 bps and signaled two more cuts this year, bringing the dot plot median to a 3.50%–3.75% terminal range by end-2025.

• Market pricing (via rate futures) currently implies a high probability (~89%) of a 25 bps cut in October and further easing in December.

• In the FOMC minutes from July, several members were already inclined toward easing, though most preferred to await more data.

So, structurally, the consensus of two more cuts looks plausible if conditions remain soft and inflation continues moderating.

How the shutdown muddies the waters

• The current U.S. government shutdown has disrupted the release of key economic data (jobs, CPI, etc.), creating a “data vacuum.”

• That lack of clarity makes the Fed’s job harder: policy decisions will be made under greater uncertainty, which tends to make the Fed more cautious.

• Meanwhile, the shutdown itself is a drag on growth: each week of shutdown is estimated to shave 0.1–0.2 pp from GDP growth.

• If the shutdown deepens, the Fed may feel added pressure to act more aggressively than currently expected — or pause cuts if inflation surprises upward in the interim.

Bottom line & alternative scenarios

• Baseline: Two cuts by year-end is still the “expected path” (October + December) if inflation continues downward and labor softens.

• Upside risk: A deeper-than-expected economic hit from the shutdown or worsening labor releases could push the Fed toward a front-loaded cut cycle (e.g. cuts in October and December, possibly even one more).

• Downside / caution risk: If inflation reaccelerates or data surprises, or the Fed hesitates due to uncertainty from missing data, cuts might be delayed or reduced in magnitude.

Bottom line: the “two cut consensus” is credible, but it’s more fragile now. The shutdown introduces asymmetric risk — the Fed may have to adjust more aggressively (in either direction) than currently anticipated depending on how the data (when it returns) shapes up.

In the next section we ran a short, probability-weighted scenario analysis for the Fed’s path to year-end based on inflation and labor outcomes (and the data-vacuum risk from the shutdown).

We will be showing the scenario, the probability I assign (market signal + judgement), the expected Fed moves, key triggers, and trading implications.

Market backdrop (important)

• Fed-funds futures / CME FedWatch show markets essentially pricing a cut in Oct and high odds for Dec as well.

• The shutdown has created a data vacuum; private “shadow” reports suggest softer September payrolls. That increases uncertainty around actual labor/inflation prints when released.

• Latest inflation runs near ~2.9% YoY (Aug) with September CPI due Oct 15 — if it continues easing that supports cuts.

Probability-weighted scenarios (sums to 100%)

Baseline — Two cuts (Oct + Dec)

• Prob. 60% (market-favored outcome + policy intent).

• Triggers: CPI continues to drift down toward ~2.5–3% YoY; labor softens modestly (slower payroll gains, small rise in unemployment/claims). Data gap from shutdown doesn’t change the direction once releases return.

• Fed path: −25bps in Oct, −25bps in Dec (total −50bps).

• Why 60%: Futures price this path strongly; inflation has been moderating and many Fed speakers are dovish — but shutdown adds uncertainty.

• Trading implication: Front-run is risky; preferred trades: short-dated rate-sensitive long positions (e.g., long duration once cuts priced in), tail hedges into CPI print, or buy calls on bond ETFs after initial knee-jerk.

Downside data shock — Extra cuts (front-loaded / >2 cuts)

• Prob. 20%.

• Triggers: Sharp weakness in labor (shadow reports confirm big payroll miss), CPI falls faster than expected (services/shelter disinflation). Shutdown causes persistent growth drag.

• Fed path: Oct cut + Dec cut + possible additional cut (e.g., early-Q1 or an extra 25bps in Dec) — total −75bps+ by year-end/early-next year.

• Why 20%: Shutdown and private indicators raise the chance of a surprise soft patch; markets already price easier and could reprioritize cuts.

• Trading implication: Long duration rates, buy long-dated Treasuries, risk-parity assets, or call options on rate-sensitive equities; but beware of volatility if data misreads.

Hawkish surprise / Fed caution — Fewer or delayed cuts

• Prob. 20%.

• Triggers: Inflation reaccelerates (services/shelter resilient), labor remains strong (robust payrolls once published), or Fed chooses to wait because of data uncertainty from shutdown.

• Fed path: Only one cut (October) or cuts postponed to December/next year (net −25bps by year-end).

• Why 20%: Fed officials have repeatedly signaled data-dependence and could pause if they fear upside inflation surprises or lack confidence because of missing data.

• Trading implication: Shorter duration positioning, defensive equity bias, and volatility hedges; options sellers may regain edge once cuts are repriced out.

Net expected outcome (simple expectation)

Expected cuts by year-end ≈ 1.6 cuts (0.6×2 + 0.2×3 + 0.2×1 = 1.6). That aligns with market pricing (strong odds for Oct + Dec) but leaves material tail risk on both sides because of the shutdown and noisy data.

Quick Checklist Of Data/Events To Watch (Follow The Order)

1. CPI (Sep) — Oct 15 release: clear inflation signal.

2. Nonfarm payrolls / unemployment (Sep) — delayed but critical (private shadow prints helpful meanwhile).

3. Initial jobless claims / ADP / regional surveys — interim labor signals.

4. Fed speakers & minutes — tone on data reliance vs. insurance cuts.

5. Shutdown developments — length matters for growth drag and confidence.

Bottom Line

Markets currently price ~two cuts by year-end and that is the most likely single outcome—but the shutdown makes that consensus fragile. Prepare for asymmetric outcomes: a weak data surprise could push the Fed to cut faster; a hawkish surprise or Fed caution could delay cuts and produce a sharp repricing.

S&P 500 Performance Projection If Market Consensus Of Rate Cut Holds

If the market consensus of two Fed rate cuts (October and December 2025) holds, the S&P 500 could follow a gradual 5% advance into early 2026.

Historically, the $S&P 500(.SPX)$ tends to outperform in the six months following the start of an easing cycle — especially when inflation is falling and growth remains resilient. Under this scenario, easing financial conditions would support corporate margins, tech valuations, and credit-sensitive sectors like real estate and industrials.

The projection above assumes:

• Two 25 bps cuts that bring the policy rate to around 3.75% by year-end.

• Earnings growth stabilizing around 6–8% annualized for 2026.

• Modest improvement in liquidity and risk appetite.

The shaded band (±1.5%) reflects uncertainty from potential macro data shocks or geopolitical risk. Upside potential toward +7% could emerge if inflation cools faster and global central banks join the easing cycle. Conversely, a hawkish Fed pause or prolonged U.S. shutdown could flatten or reverse the rally.

In short, as long as rate cuts proceed as expected and inflation remains anchored, equities are positioned for a constructive but measured bull drift into Q1 2026 — with volatility likely around data releases and Fed communications

Summary

With the US facing a potential government shutdown, the Federal Reserve's upcoming FOMC minutes are under intense scrutiny. The Fed is navigating a complex global environment where the European Central Bank is pausing its tightening cycle, increasing pressure on the Fed to lead global rate cuts.

Market consensus has been pricing in up to two more rate cuts before year-end, fueled by signs of slowing inflation and a cooling economy. However, a government shutdown introduces significant uncertainty. Such an event would delay crucial economic data releases (like jobs and inflation reports) that the Fed relies on for its decisions. This data blackout could force the Fed into a holding pattern, making it hesitant to cut rates further until a clear economic picture emerges.

While the global shift towards easing might encourage the Fed to continue its path, the immediate domestic disruption from a shutdown could override that influence. The Fed may choose to pause its own cutting cycle, prioritizing financial stability amid the uncertainty. Therefore, achieving two more rate cuts this year now faces a significant hurdle; the Fed might delay further action until the shutdown's economic impact is clear.

Appreciate if you could share your thoughts in the comment section whether you think Fed would hold the two rate cut till year-end as per market consensus or we will see one more surprise cut?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.

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