CME Fedwatch projects one quarter-point in June, then what?
Fed’s Hammack Says She Prefers Slightly More Restrictive Rates
Bloomberg reports Fed’s Hammack Says She Prefers Slightly More Restrictive Rates
Federal Reserve Bank of Cleveland President Beth Hammack said she would prefer interest rates to be slightly more restrictive to keep putting pressure on inflation, which is still running too high.
“Right now, we’ve got policy that’s right around neutral,” Hammack said Friday during an event in Cincinnati. “I would prefer to be on a slightly more restrictive stance to help continue to put pressure” on the inflation side of the central bank’s mandate, she said.
Fed officials delivered a third consecutive rate reduction earlier this week, but a large group of regional bank presidents signaled they opposed the cut. Two officials, Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid, officially dissented against the move, saying they preferred to leave rates unchanged. And six policymakers penciled in rate projections suggesting they also opposed a cut.
Hammack didn’t vote on monetary policy decisions this year but will vote in 2026. Asked if she supported this week’s rate reduction, she didn’t directly answer the question but said it was a “complicated decision” since officials are facing pressure on both sides of their mandate.
Fed Dot Plot
The Fed’s “Dot Plot” from December 2025 Economic Projections ranges from 2.0 to 2.25 percent on the low end, and 3.75 to 4.0 percent on the high end.
Since the current rate is 3.5 to 3.75 percent, three voting members forecast a quarter-point hike by December of 2026.
Another four voting members say that the Fed is done with cuts (or any further cuts will be taken back).
The Median projection is 3.4 percent. That would be approximately an eighth-point cut from here.
CME Fedwatch December 2026
December 2026 Dot Plot vs December CME Fedwatch
- Fed: One Cut, but Small ~ 1/8 Point
- Market Betters: Two Full Quarter-Point Cuts
There is so much data coming by the FOMC January 28 meeting that all of this is quite speculative.
But we can say it’s going to be a tradeoff between inflation and jobs.
For discussion, please see Powell Blames Tariffs for Inflation, Says Job Growth Is Negative
In the press conference, Powell blamed tariffs and said the BLS overestimated jobs.
On December 8, I commented Health Care Inflation Bomb Makes the Fed’s 2 Percent Target Almost Impossible
Let’s discuss 2026 health care premiums and what they mean to the Fed’s preferred measure of inflation.
I expect a rise in the Health Care weight in the PCE. I also expect a net 1.5 percentage point increase in PCE inflation in 2026 due to health care.
These estimates stem from health care price hikes across the board (Medicare and corporate plans), not counting the huge ACA impacts.
The Fed’s PCE inflation target is 2.0 percent. If I am in the ballpark, health care alone rates to take up 1.5 percentage points of that target, again, not counting Obamacare!
Unless jobs collapse, and they easily can, the Fed is going to struggle to justify rate cuts. And if they do cut, the most likely reason will be jobs. It’s not a good place for the Fed.
Click above link for details and the health care math.
Trump’s motives are reflecting his personal interests. His wealth was made and is still held in real estate, an inflation hedge. His push for lower interest rates driving up inflation has more to do with pushing up his wealth than benefitting the country. The economy is clearly headed for higher inflation, yet the fed is dropping rates or at least anticipated to hold them below market rates. This is because many of its owner banks have reserve/liquidity problems and they need support, steady prices objective can wait if not outright jettisoned. It seems the path for dollar value destruction is in the interest of the president and the fed’s owners, I seriously suspect the only effort made toward controlling inflation will be lip service until inflation gets so bad the fed has to act to maintain its existence.
It is interesting that the bank reserve issue has developed after the fed dropped all reserve requirements shortly after the covid pandemic fiasco commenced. Wrongheaded moves by the fed have exacerbated the problems we face.
Mish – take a look at dram prices. Up 300% since Sept
Rate cuts will fix this.
Ah.. no, they won’t
I was being sarcastic.
As many as is necessary to keep the Federal Government from having a sovereign debt crisis.
The Fed is now openly acting as de facto fiscal agent of the US Treasury. All pretense to the contrary has been dropped.
Predictions are difficult. Lots of variables.
My concern is for growing instability, a large market correction, and a recession. I am up to 45% cash now. Of course, things can keep bumbling and stumbling along. But every week that goes by finds Trump adding to the instability. And at some point, things might tip past a breaking point. Which means rates “could” head down quickly.
Agreed. I am raising my cash position selling off nearly all of my IWM position even though I expect it to go a bit higher, time to take profits. 2026 is going to be a horrible year:
Best thing to do is just hold cash for now.
1) It’s an era where each administration and CONgress likes to double the deficit.
2) The debt is so high, inflation is always policy; but nobody can admit it.
3) I wonder if even tangible assets can hold their value when the Everything Bubble pops.
4) what new euphemisms do we get in the next crash for money printing and hopium? “Soft Landing,” “QE,” “Green Shoots,” “Operation Twist,” “monetizing the debt,” “Inflation is transitory,” “Extraordinary measures,” “accommodative monetary policy,” and “credit loosening” are all overused….
The better question to ask which actually has a definitive answer:
Will my life savings buy more or less during and after 2026?
Said it once and Ill say it again … the rates are going to zero. The rich have their boy Donald in the drivers seat and they very much liked the 0% loans they took out to buy up everything that wasnt nailed down .. all time high prices for stocks, bonds, houses, businesses, mobile home parks, apartment buildings .. and the best way to buy anything is with free money like in 2008-2020. The economic numbers wont be believed anyway, so just think of this as part 2 of the Great Give-Away. Back to feudalism. And dictators dont give a hoot about inflation.
I predict another financial ‘crisis’ is about to happen, so you’re not the only one who sees rates going to zero.
Stock market is setting all time highs despite a crappy economy. First gold and now silver going parabolic. Fed starting QE again. Something feels off.
With serial financial bubbles, things have been off for over 30 years.
The Fed can do whatever, but the “vox populi” [market] controls what happens with the rest of the yield curve.
Having been in the cap mkts since early ’80s we’ve ridden the “right side of a Christmas tree” of decling rates for 40ish rates. As we’ve bounded of zero some as that secular winds down I’ve wondered for years what is going to break this zero-bound floor into a new secular rate paradigm.
Considering how Trump cares not about the deficit I’m beginning to think HE – and his pending Fed Head crony – might be the catalyst to let long rates freak-out into a new paraidgm of high rates scared of his over stimulating and inflationery ways. He’s certainly on board with trashing long bond for a long time.
Trump wants the interest rate to be zero, at which point raging inflation will destroy the dollar. Of course it’s all a hoax he will say while we walk around with dollars in wheelbarrows like Zimbabweans. If I wanted to completely destroy this country, Trump is the guy I would want in charge.
I agree with you that maybe one to three 1/4 point cuts, unless things crash like due to some external event, controlled or uncontrolled, or series of events which is predicted in February! Some semi-doomsday prediction, not the big zombie one but a significant one of a fairly large magnitude! I am moving to a 50% position to be fairly safe and getting my equity out while I can! The Fed has no real control anymore since they are always late drinking the punch! The biggest screwed up power, they have is to go to a zero rate or a real low rate! They talk a lot of double speak and make no sense a lot of the time, confusing everbody with their worthless brainy (Idiot smoke & mirrors) analysis. However, they already allowed Europe and others to do that already, so the tools they have are almost all worn out! Today the administration and Feds just bump heads. Plus, the Feds are far from being independent! Remember today nobody is independent and that is our ultimate doom before we and/or AI take total control and decide our ultimate fate! BOOM!
ZERO HEDGE HAS ONE THING RIGHT ON A LONG ENOUGH TIMELINE EVRYTHING GOES “BACK” TO ZERO!
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forgot to mention – Federal Reserve’s December 10, 2025, announcement of Reserve Management Purchases (RMPs).By purchasing ~$40 billion monthly in Treasury bills (T-bills) starting December 12, 2025—potentially scaling to $55 billion when including mortgage-backed securities (MBS) reinvestments—
Ben Carson had a great post on inflation having a 75 year historical run rate of 3%+ despite what the Fed says and it looks like we’ll be at or above 3% for the foreseeable future. Personally I think the US inflation rate will be over 4% for at least the next decade with spikes up periodically.
https://awealthofcommonsense.com/2025/12/inflation-is-not-going-back/
Good article to read for people who think the inflation issue is going to go away, it isn’t and demographics is in the driver’s seat.
BORROW PRINT SPEND Trump Plan 2025
Trump by design is running inflation to 4%
BOTTOM LINE – TRUMP IS TAXING YOU TO PAY FOR IT
— THE INFLATION AND TARIFF ‘ IMPLICIT TAXES ‘ Exceed Any Tax Relief Trump May Try to Sell Private Citizens On ———– He is tricking us all
Just as the Tariffs are an implicit tax – Trump is claiming tax relief while taxing you twice tarriffs and inflation. Please Know — the TRUMP intervention deliberately engineers higher inflation (4% average vs. baseline ~2%).
The implicit taxes from Trump’s 2025 tariffs and inflation exceed explicit tax relief by an estimated $1,200 ±20% ($960-$1,440) annually per average U.S. household through 2030, netting a regressive burden for the bottom 99% while benefiting the top 1%—a structural outcome of policy design that amplifies inequality despite relief framing.
RUNNING UP THE DEFICIT AND TO TAX YOU TO PAY FOR IT – DELIBERATE IMPLICIT TAX
( meaning, you do not know your being taxed, if he asked to increase taxes he never could and win an election)
Trump Deliberately Engineers Inflation – inflation is a partial “payment” mechanism
Trump Deliberately Created the Tariffs – Tariffs function as an implicit consumption tax, passed to importers/consumers
TRUMP Plans to Run up the Deficit and Tax You to pay for it
Inflation – Trumps fiscal costs are paid for in part through eroded real incomes and savings,
equivalent to an implicit tax
Citizens will “pay” disproportionately for all of this : inflation taxes the poor/middle via higher costs for essentials meaning eg: food/energy up 4-5% if not greater
a regressive burden for the bottom 99% while benefiting the top 1%—a structural outcome of policy design that amplifies inequality despite relief framing.
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Trump is going to run the Deficit Up as high as Possible – whatever he can get away with, printing, borrowing, spending is the goal
US Debt Minimum already 8% greater than current projections
U.S. debt is growing ~8% more rapidly than 2025 predictions (CBO/IMF baselines), best estimate at +$2.23T YoY vs. +$1.8T forecast
Including Trump Policy Drivers—Tariffs, Checks, and Structural Pressures. Disaggregate impacts of $2,000 dividends, deportations, tax relief, and militarization; however also include Congo/Venezuela/Greenland deals as revenue offsets.
Total Outstanding Debt: $38.35T as of Dec 11, 2025 (U.S. Treasury “Debt to the Penny”), up from $36.12T (Dec 2024), a 6.2% YoY nominal increase—faster than the 4.6% nominal GDP growth (Bureau of Economic Analysis, Q3 2025).
Publicly Held Portion: $30.79T (80% of total), with intragovernmental holdings at $7.56T (e.g., Social Security Trust Fund), per Treasury; this split underscores vulnerability, as public holders (e.g., foreign investors at 30%) demand higher yields amid tariff volatility.
Per Capita Burden: $113,500 (Census-adjusted, ~337M population), or $285,000/household (avg. 2.5 persons), per Joint Economic Committee—exceeding median household net worth ($192K, Federal Reserve SCF 2024 update).
Debt/GDP Ratio: 124.3% (2024 close, Trading Economics/OMB); Q2 2025 at 118.8% (FRED/St. Louis Fed), but rebounding to ~122% by Dec due to Q4 deficit spikes.
Interest Payments Trend: $104B in first 9 weeks FY2026 (Oct–Dec 2025, Treasury), equating to $11B/week or 4% GDP annualized (RSM US analysis)—double pre-2022 levels, crowding out discretionary spending.
Trump’s 2025 agenda—OBBBA (Jul 2025 enactment), 24–49% tariffs on Asean/China imports, $2,000 dividends (proposed Nov 2025), mass deportations (1M+ targeted), billionaire tax relief (extending TCJA), and militarization ($1.1T defense FY2026)—exacerbates deficits by $600B–$1T annually (CRFB scoring). Offsets like Congo minerals deal ($50B cobalt access, disadvantaging China) and Venezuela oil seizure (projected $200B revenue) are speculative; Greenland bid stalled (Danish resistance). Healthcare’s “lop-sided productivity” claim ignores relativism
Regardless which one of taco’s lackeys he appoints to head the fed, you can bet that he will badger them to the extent necessary for a continuation of lower short-term interest rates (and possibly extended QE).