US Fed's December rate cut looks increasingly like a toss-up

Citing worries about inflation and signs of relative stability in the labour market after two US interest rate cuts this year, a growing number of Federal Reserve policymakers are signaling reticence on further easing, helping push financial market-based odds of a reduction in borrowing costs in December to below 50%.

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As if to underscore the knife-edge decision, San Francisco Fed President Mary Daly - until now a firm supporter of the Fed's rate cuts - said on Thursday any decision about four weeks ahead of the next policy meeting is "premature."

"I have an open mind, but I haven't made a final decision on what I think, and I'm looking forward to debating with my colleagues," Daly said during an event in Dublin, Ireland. Minneapolis Fed President Neel Kashkari, who, like Daly, said just a couple months ago that he felt a third rate cut by the end of this year would be warranted, told Bloomberg News on Thursday that he had opposed last month's rate cut because of resilience in the economy, and is on the fence about December. “We have inflation that's still too high, running at about 3%,” he said in brief welcoming remarks earlier in the day at a conference hosted by his regional Fed bank. “Some sectors of the US economy look like they're doing great. Some sectors of the labour market look like they're under pressure.”

Short-term interest rate futures, the best real-time gauge of financial market expectations for Fed policy, now reflect a 47% chance that the rate-setting Federal Open Market Committee will lower borrowing costs on December 10, when the Fed wraps up its last policy meeting of 2025. Earlier this week the contracts indicated a 67% likelihood of a cut.