• Markets are almost uniformly positioned for a 25 basis point Fed rate cut at the upcoming FOMC meeting, aligning with current pricing that sees an 80–90% implied probability.
  • J.P. Morgan (JPM) Research anticipates further easing beyond the most recent 25 bps cut in September, projecting two more cuts in 2025 and one in 2026 in a "mid‑cycle, non‑recessionary" scenario.
  • Equity markets are relatively subdued ahead of the decision, with traders focused on the Fed's guidance for the 2026 rate path and updated inflation projections.

A Priced-In Pivot

Markets are bracing for what appears to be a foregone conclusion. According to Michele from JPMorgan, everyone is expecting a 25 basis point cut at the Fed's December 2025 meeting, a move that would extend the central bank's pivot from its earlier aggressive tightening cycle into a more clearly defined easing phase. Futures pricing reflects an almost certain move, with implied probabilities hovering between 80% and 90%, according to people familiar with the trading flows.

"The consensus is remarkably uniform," a senior trader at a major Wall Street firm said, requesting anonymity to discuss market positioning. "It's not about if they cut, but what they say about what comes next."

The Fed's Delicate Balance

This anticipated cut would lower the federal funds rate, marking a further shift away from the prior tightening regime aimed at combating inflation. J.P. Morgan Research frames the current environment as a "mid‑cycle, non‑recessionary easing," contingent on a soft but resilient labor market and moderating inflation. The Fed already cut rates by 25 bps at its September meeting, bringing the funds rate to 4.0–4.25%, the first cut in nine months. Chair Jerome Powell characterized that move as a "risk management cut" aimed at forestalling further labor-market slowing, leaving open whether it would become an extended easing cycle.

Now, with another cut on the horizon, the focus has sharpened on forward guidance. Traders are parsing every word for clues about the 2026 rate path, alongside updated inflation and growth projections that will shape risk sentiment across equities, credit, and rates. "The dot plot is going to be the real story here," an analyst noted, referring to the Fed's interest rate forecasts. "A 25 bps cut is baked in; the market's reaction will hinge on whether the Fed signals a gradual easing path or something more aggressive."

JPMorgan's Mixed Signals

Ironically, while JPMorgan's economists are outlining a supportive monetary backdrop, the bank's own shares have faced headwinds. The stock fell about 4% on 9 December after warning that 2026 expenses will exceed $92 billion due to technology investments and regulatory initiatives, disappointing investors looking for tighter cost control. This contrast highlights the complex interplay for financial institutions: lower rates can compress net interest margins, but may boost loan demand and asset quality if growth holds.

Looking ahead, J.P. Morgan expects a gradual easing path—two more cuts in 2025 and one in 2026—consistent with a soft-landing scenario rather than a deep recession. However, the bank's economists caution that "a major shift in labor market momentum" could derail near-term cuts, while a re-acceleration in inflation might slow or halt easing altogether. For now, though, the market's gaze is fixed on the Fed's next move, with Michele's comment underscoring that the real informational content will be in the signalling beyond this meeting.