The possibility of an interest rate cut in December is becoming increasingly slim! Federal Reserve key voters shift towards hawkish stance, U.S. stocks go from KTV straight to ICU.

As Michael Barr, a member of the Federal Reserve Board, sent a significant signal of concern about inflation, internal divisions among Federal Reserve officials over the outlook for December and future interest rates are intensifying. Another Federal Reserve policy maker with voting rights on the FOMC and expressing growing unease about the resurgence of inflation within his term. After the Federal Reserve announced rate cuts in September and October meetings for the first time in a year, the probability of another rate cut in December seems to be diminishing. Traders who had priced in three consecutive rate cuts this year are now shifting towards a hawkish stance, leading to a continuous decline in risk assets such as stocks and cryptocurrencies due to the shift in interest rate trajectory. Internally within the Federal Reserve (including 2025 FOMC voters and officials), two opposing camps of hardline hawks and doves who continue to advocate for further rate cuts have completely formed. This is why on Thursday, US stocks saw a sudden collective plunge after a brief uptick, with well-known economic journalist Nick Timiraos, also known as the "new Fed News Agency," recently writing that the latest September nonfarm payroll report further deepened the internal divisions among Federal Reserve officials. Both hawks and doves can discern from the nonfarm payroll report the core logic of pausing or continuing rate cuts, and the lack of recent economic data has made it more difficult for Federal Reserve officials to reach a consensus on the outlook. Nvidia's incredibly strong performance and future prospects, along with Google's AI application ecosystem once again sparking interest, and the somewhat "soft landing" of the nonfarm payroll data. It should have been a double positive, however, with the price of bitcoin falling below $90,000 and triggering a vigorous sell-off of risk assets, the market is now paying more attention to the hawkish stance of Federal Reserve officials, causing a "high open low walk" scenario for US stocks on Thursday. The three major US stock indices all saw significant gains at the opening, with the S&P 500 rising 1.44% and the Nasdaq index soaring 2.18%, but a dramatic turnaround occurred at midday and US stocks ultimately plunged, with the S&P 500 falling 1.56% and the Nasdaq index plummeting 2.16%. The September nonfarm data shows a very "contradictory" situation in the US labor market, with employment numbers exceeding expectations on one hand, while the unemployment rate unexpectedly rose to a four-year high on the other. This data is the last employment report before the December Federal Reserve monetary policy meeting and the lagging and contradictory nature of the data is deepening the division among Federal Reserve officials on the outlook for interest rates. Barr's decision is crucial for whether the Federal Reserve will announce further rate cuts or pause rate cuts in December. Federal Reserve Board member Michael Barr, who is mainly responsible for overseeing affairs, rarely makes statements about monetary policy, and his statements on the outlook for monetary policy usually do not come with any positions. However, he said on Thursday that the Federal Reserve does need to act cautiously when considering further rate cuts. Barr said in his speech, "What concerns me is that we still see inflation at around 3%, while our long-term inflation target is 2%, and we are committed to bringing inflation down to this 2% target. Therefore, we need to be cautious in our monetary policy now because we need to ensure that we achieve the two goals of our dual mandate." Barr did not directly oppose another rate cut by the Federal Reserve but expressed concerns about the process of combating inflation under heavy pressure from Trump's tariffs, which will further increase the internal policy consensus divergence faced by Federal Reserve Chairman Jerome Powell - Powell is trying to achieve a positive consensus among a group of increasingly divided monetary policy decision-makers, to convey a consistent and harmonious voice to the market before the Federal Reserve FOMC monetary policy meeting in Washington on December 9th and 10th. According to pricing of interest rate futures contracts, traders generally believe that the probability of a rate cut in December's monetary policy meeting is around 40%, far below the 80% probability priced in by the market last month. Barr supported the Federal Reserve's rate cut decisions in September and October, but has not given any signals regarding the December monetary policy meeting so far. Given that several of his colleagues (all 2025 FOMC voters) have clearly stated support or opposition to three consecutive rate cuts, his vote may play a crucial role in the current highly uncertain monetary policy path. However, his current stance appears to lean towards pausing rate cuts, giving the hawkish camp a slight advantage at the moment. After a prolonged government shutdown, the Federal Reserve finally began receiving new official statistics, but so far, these data have not greatly eased the significant divisions among monetary policy makers. The September nonfarm employment report released by the US Bureau of Labor Statistics on Thursday presented a mixed picture. US employers added a net of 119,000 jobs - the best since April, but the August and previous months' nonfarm employment data was unexpectedly revised downward, and the unemployment rate inched up to 4.4%. After the data was released, Barr said he believed that the labor market "has indeed cooled off," but emphasized that the resilient US economy has created jobs at a pace close to achieving a so-called "balance of profits and losses," enough to keep the unemployment rate stable in the long run. Hawks' voices are loud and clear Also on Thursday, Beth Hammack, a 2026 FOMC voter and president of the Cleveland Federal Reserve, who has always held a hawkish stance, called the September employment data "outdated" and reiterated her opposition to further rate cuts by the Federal Reserve. She also stated that further rate cuts by the Federal Reserve could seriously threaten financial stability and insisted that the financial environment tends towards loose conditions. "The recent sharp rise in the stock market and the relaxed credit conditions indicate that the financial environment is still quite loose in reality," Hammack emphasized on Thursday. "These loose conditions should be very helpful in boosting economic growth next year." Hammack also stated, "Choosing to lower interest rates to support the labor market might risk prolonging this period of high inflation, and may encourage increasingly aggressive risk-taking behavior in financial markets. This means that no matter when the next economic downturn comes, its scale may be larger than it would have been, with a greater impact on the economy." At almost the same time, Austan Goolsbee, the chairman of the Chicago Federal Reserve and leaning towards a neutral position, also switched to the hawkish camp at a separate event in Indianapolis. Goolsbee said he remains very concerned about another rate cut in December. At almost the same time on Thursday, Federal Reserve Board member Cook said that the possibility of a substantial decline in asset prices has increased, but she also stated that given the overall resilience of the financial system, she did not see the kind of destructive fragility seen during a major recession. Goolsbee said, "The process of combating inflation seems to be stalled, and if there is one now, it even sends a warning signal of developing in the wrong direction. This really makes me very anxious." Goolsbee has a vote on the Federal Reserve FOMC this year, while Hammack will have a vote in 2026. Jeff Schmid, chairman of the Kansas Federal Reserve and also a member of the 2025 Federal Reserve FOMC, is a representative figure of the hawkish camp within the Fed, even voting against the Fed's rate cut decision in October, as he believes that with inflation pressures still present, this move may undermine the efforts of the Federal Reserve to achieve the 2% inflation target. He has repeatedly stated recently that his vote against it is due to concerns that massive investments by CKH HOLDINGS will bring upward pressure on inflation. Lorie Logan, chairman of the Dallas Federal Reserve and also a 2026 FOMC member, has also recently stated that inflation pressures are significant, and although the labor market is in a soft spot, it is still driving the expansion of the US economy, thus supporting a pause in rate cuts in the absence of economic data.