The Odds of a Rate Cut, 2025

As of November 26, 2025, the markets are currently pricing in a high probability that the Federal Reserve will cut interest rates at its final meeting of the year on December 10, 2025.

Here is the breakdown of the current odds and the factors driving them:

The Odds: ~80–85% Chance of a Cut

 * Current Market Sentiment: Prediction markets (such as the CME FedWatch Tool) currently show an 80–85% chance of a 25-basis-point rate cut.

 * Recent Shift: This is a significant increase from just a few weeks ago, when the odds were closer to a "coin toss" (50/50). Expectations shifted rapidly following dovish comments from key Federal Reserve officials in late November.

Key Drivers of the Expectation

The swing toward a rate cut is driven by a combination of official comments and economic data:

 * Fed Officials' Signals: The primary catalyst for the increased odds was recent commentary from influential Fed members.

   * Christopher Waller (Fed Governor) and John Williams (NY Fed President)—both close allies of Chair Powell—have signaled openness to a cut, citing a need to support the labor market.

   * Mary Daly (San Francisco Fed) has also expressed support, noting signs of deteriorating labor conditions.

 * Labor Market Concerns: The Fed's focus has shifted slightly from fighting inflation to protecting jobs. Recent data has shown a "cooling" labor market with moderated wage growth, prompting fears that keeping rates too high for too long could damage employment.

 * Inflation Outlook: While inflation remains slightly above the target, officials like Williams have stated that upside risks have lessened, and they do not see immediate inflationary threats from factors like tariffs preventing a near-term adjustment.

Risks to the Forecast

While a cut is the dominant expectation, it is not guaranteed. A few factors could still alter the outcome:

 * Data Gaps: There have been references to delayed government data due to a recent shutdown, which has created a "fog" for policymakers.

 * Dissenting Voices: Some officials, such as Susan Collins (Boston Fed) and Jeff Schmid (St. Louis Fed), have remained more hawkish, suggesting they might prefer to pause rate cuts to ensure inflation is fully tamed.

What a Cut Would Look Like

If the Fed proceeds as expected:

 * Action: A reduction of 25 basis points (0.25%).

 * New Target Range: This would lower the federal funds rate to a range of 3.50% – 3.75%.

We watch the finance and real estate markets daily.  Should you have any questions about how a further rate cut might affect mortgage rates or have questions about our local San Diego real estate market, feel free to send us your questions or call us at (619) 417-5564.