Traders on Wall Street like to pretend they are focused on the “decision,” but this week the 25 basis points are just the opening act; the real drama arrives in the footnotes, charts, and carefully hedged adverbs of the Fed’s 2026 guidance. With another quarter‑point cut all but baked in by futures markets, the question gripping desks from Midtown to Menlo Park is whether Jerome Powell is about to sketch a gentle downhill path for rates next year or merely declare a scenic overlook and ask investors to enjoy the view from 3‑plus percent for a while.
The cut everyone expects
Fed funds futures and big-bank desks are converging on the same basic script: a third straight 25‑basis‑point cut, taking the target range into the mid‑3s and extending a late‑year easing cycle that began in the fall. Analysts frame it less as an emergency rescue and more as a belated acknowledgment that the labor market has lost some of its former swagger, even as inflation refuses to fully surrender.
If the committee does anything bolder or tamer than that, it will surprise a market that has spent weeks treating a December cut as a near‑done deal, courtesy of Fed officials who have sounded just dovish enough to nudge holdouts like J.P. Morgan (JPM) into the easing camp. The risk for Powell is that in a year when every word has moved billions, “surprise” is not the compliment it used to be.
2026: Path or plateau?
The real suspense lies in how far and how fast the Fed is willing to ease in 2026, a year that already has a crowded roster of forecasts. Wall Street houses largely imagine a gentle descent: two or three more cuts, leaving the funds rate floating somewhere a bit above 3%, still higher than the fond memories of the pre‑inflation era but low enough to keep risk assets in decent spirits.
More hawkish outlooks argue that resilient growth and inflation stuck north of 2% will leave the Fed with less room to maneuver than bond markets hope, turning 2026 into more of a plateau than a glide path. In practical terms, the difference between “a couple more cuts” and “we’re basically at neutral” is the difference between equity strategists forecasting another grind higher and fixed‑income desks finally having something to brag about at year‑end meetings.
Markets on rate‑watch
Asset prices have been behaving like a captive audience waiting for the punchline. Stocks have crept higher but not euphorically so, credit spreads have tightened just enough to show optimism, and Treasury yields are hovering in a range that suggests investors expect easing, but not a policy capitulation.
For equities, the playbook has been brutally simple: any hint of faster cuts has been a green light, while hawkish asides have drawn instant boos from the tape. Fixed‑income investors, meanwhile, are quietly hoping 2026 brings exactly the sort of “not too hot, not too cold” environment that makes intermediate‑duration bonds look clever in hindsight.
The Fed’s balancing act
Officials must now thread a familiar needle: ease enough to soothe a cooling labor market and a rate‑sensitive housing sector without re‑igniting the inflation they spent years trying to tame. With recent data releases delayed by a government shutdown, policymakers are flying with fewer instruments than usual, which adds a touch of drama to projections that will extend well into 2026.
Their own forecasts, last updated in September, already envisioned rates staying above 3% next year, and investors will sift every updated dot and phrase for signs of either capitulation to market pricing or a renewed insistence on keeping policy “higher for longer lite.” In an era obsessed with artificial intelligence, the most consequential model for markets this week is still human: a dozen or so officials trying to guess the future together, one dot at a time.
What’s at stake for 2026
The stakes go well beyond a single quarter‑point move. For households and companies, the Fed’s 2026 path will shape everything from mortgage resets and capex budgets to how aggressively CFOs lean into buybacks versus bond issuance. For global central banks, tomorrow’s decision will serve as both a benchmark and a cautionary tale as they draft their own 2026 playbooks.
If Powell signals a steady march toward a lower but still restrictive rate, 2026 may belong to risk assets and carry traders; if he plants the flag near today’s level and talks tough on inflation, bond investors could finally get their long‑awaited moment in the sun. Either way, by tomorrow afternoon the market will know whether 2026 is supposed to be the year of the soft landing, the long plateau, or — in Wall Street shorthand — “ask me again at the next meeting.”
The Sources
[1] Fed’s Dec. Interest Rate Decision Most Critical Market Event Left in … https://www.businessinsider.com/december-fed-fomc-meeting-interest-rate-cut-decision-stocks-2025-2025-12
[2] What To Expect For Interest Rates In 2026 https://www.forbes.com/sites/simonmoore/2025/11/29/what-to-expect-for-interest-rates-in-2026/
[3] There’s Unusual Drama Around the Fed’s Rate Decision https://www.bloomberg.com/news/newsletters/2025-12-09/federal-reserve-s-december-meeting-has-drama-around-interest-rate-cuts
[4] December Fed Meeting: Live Updates and Commentary https://www.kiplinger.com/investing/live/december-fed-meeting-live-updates-and-commentary-2025
[5] Global week ahead: Fed’s December decision to inform world’s central banks https://www.cnbc.com/2025/12/07/global-week-ahead-feds-december-decision-to-inform-worlds-central-banks.html
[6] Will the Fed cut rates again? What to expect before December meeting https://www.usatoday.com/story/money/2025/12/08/federal-reserve-december-interest-rate/87551858007/
[7] JP Morgan shifts outlook on Fed rate cut to December https://www.reuters.com/business/jp-morgan-shifts-outlook-fed-rate-cut-december-2025-11-27/
[8] Stocks, dollar inch higher a day ahead of Fed announcement – Reuters https://www.reuters.com/world/china/global-markets-wrapup-1-2025-12-09/
[9] 2026 Outlook: Treasury Bonds and Fixed Income – Charles Schwab https://www.schwab.com/learn/story/fixed-income-outlook
[10] Dow, S&P 500, Nasdaq rise as Fed meeting kicks off, JOLTS data … https://finance.yahoo.com/news/live/stock-market-today-dow-sp-500-nasdaq-rise-as-fed-meeting-kicks-off-jolts-data-shows-openings-rose-143633201.html
[11] The Outlook for Fed Rate Cuts in 2026 – Goldman Sachs https://www.goldmansachs.com/insights/articles/the-outlook-for-fed-rate-cuts-in-2026
[12] Here are the 2026 stock market predictions from all of Wall Street’s top banks https://www.businessinsider.com/stock-market-prediction-2026-investment-outlook-sp500-bofa-jpm-2025-12
[13] Risk Assets Poised for Gains in 2026 https://www.morganstanley.com/insights/articles/stock-market-investment-outlook-2026
[14] AI exuberance: Economic upside, stock market downside https://advisors.vanguard.com/insights/article/series/market-perspectives
[15] US Stocks Cautious Ahead of Fed https://tradingeconomics.com/united-states/stock-market/news/508549
[16] What to expect from the Fed this week — and in 2026 https://www.realestatenews.com/2025/12/08/what-to-expect-from-the-fed-this-week-and-in-2026
[17] Federal Reserve to announce next interest rate move on Wednesday. Here’s what to expect. https://www.cbsnews.com/news/federal-reserve-interest-rate-decision-december-10-meeting/
[18] Federal Reserve set to cut rate but may signal a pause to come https://abcnews.go.com/Business/wireStory/federal-reserve-set-cut-rate-signal-pause-128234226
[19] What to Expect in Markets This Week: Fed Interest Rate Decision and Powell Remarks; Earnings From Oracle, Broadcom https://www.investopedia.com/what-to-expect-in-markets-this-week-fed-interest-rate-decision-powell-remarks-earnings-from-oracle-broadcom-gamestop-orcl-avgo-gme-11862148
[20] Key Questions For The Fed’s December Interest Rate Decision And Beyond https://www.forbes.com/sites/simonmoore/2025/12/06/key-questions-for-the-feds-december-interest-rate-decision-and-beyond/
