‘Most Divided’ Fed In 37 Years Cuts Rates; Restarts Balance Sheet Growth

Since the last FOMC meeting (on October 29th), The Fed has largely been flying blind from a macro data perspective (thanks to the government shutdown) with the sporadic ‘hard’ data outperforming while ‘soft’ data has shit the bed and alternative labor market insights remain mixed at best (and extremely lagged at worst)…

Source: Bloomberg

Interestingly, it is labor market data that has ‘outperformed’ since the last FOMC (so the hawks have a point) while surveys and inflation data has faded (doves can point to)…

Source: Bloomberg

Gold has been the biggest gainer since the last FOMC as bonds and crude oil plunged. Stocks and the dollar are basically unchanged…

Source: Bloomberg

Rate-cut odds have been jawboned wildly since the last FOMC, tumbling on Powell’s hawkish bias (and plunging later on follow-on hawkish FedSpeak) only to surge back to a lock (100%) following Fed’s Williams dovish comments right before the blackout began…

Source: Bloomberg

Today, we also get a fresh set of Dots, which many expect to shift more hawkishly. As the chart below shows, the market is already dramatically more dovish than the ‘old’ Dots…

Source: Bloomberg

The number of dissents will be on many people’s watchlist with WSJ’s Fed Whsiperer, Nick Timiraos, noting that “as many as five of the 12 voting members of the Fed’s policy committee, and 10 of all 19 members, have signaled in speeches or public interviews that they didn’t see a strong case to cut. Of those, only one formally dissented from the central bank’s decision to cut rates in October.”

Hey @AskPolymarket what are the odds December FOMC meeting will have 4 dissenters or more.

— zerohedge (@zerohedge) November 21, 2025

The market is expecting 3 or more dissents…

So, we have five things to watch in today’s Fed discussions: Rate-change (cut is a done deal, but then what), Dissents (record split), Dots (hawkish bias), Balance Sheet (QE begins?), Presser (hawkish?).

FOMC

As was 100% expected, The Fed cut rates…

• *FED CUTS BENCHMARK RATE TARGET RANGE TO 3.5%-3.75% IN 9-3 VOTE

But, also – as expected – there were dissents… the most since 1988

• Fed Governor Stephen Miran voted against the decision in favor of lowering rates by a half-point, while Kansas City Fed President Jeff Schmid and Chicago Fed President Austan Goolsbee dissented in favor of holding rates steady

The Fed admits they are flying blind…

• *FED: WILL CONSIDER EXTENT AND TIMING OF ADDITIONAL ADJUSTMENTS

• *FED REPEATS DOWNSIDE RISKS TO EMPLOYMENT ROSE IN RECENT MONTHS

But the “Dot plot” of rate projections did not signal a much more hawkish trajectory:

The median official expected to lower rates by a quarter-point in 2026 and another quarter-point in 2027, the same as they projected in September

Balance Sheet buying begins:

• *FED SAYS IT WILL BEGIN TREASURY BILL PURCHASES ON DEC. 12

• *FED SAYS IT WILL BUY $40 BILLION OF TREASURY BILLS NEXT 30 DAYS

For the purists this is “Reserve Management Purchases”, for the non-purists, QE is back with us.

Finally, in a difference from the state of play into December 2024’s hawkish cut, we note that equity positioning into the Fed looked skewed toward expectations for a benign or mildly hawkish cut that leaves the high-beta rotation intact, with the SPX still contained in a wider trading range.

Implied, realized and vol-of-vol are all back at more normal levels after November’s turbulence, while correlations and the tail-risk indexes sit in the middle or lower end of recent bands. The SPX term structure was in gentle backwardation into the FOMC, with forward implied vols pointing to only a modest post-meeting decline due to the importance of next week’s CPI and jobs report data.

SPX options are pricing a +/-0.7% move for FOMC day, largely in-line with expectations ahead of the past 8 FOMC events (+/-0.8%).

Will we get a surprise?

On average, the S&P 500 has moved +/-0.6% during the last 8 FOMC meetings with realized moves coming lower than expectations during all events except the December FOMC (hawkish cut) which saw an outsized move (-2.9%) relative to unusually low expectations (+/-0.7%).

Read the full red-line below…