Ethenea: Fed opts for insurance move despite internal division

December 8, 2025

Interest Rates Fed

The upcoming FOMC meeting is expected to go down in history as a clear continuation of the risk-management cycle, says Jörg Held, Head of Portfolio Management at ETHENEA Independent Investors S.A. He considers the anticipated rate cut to be justified by the macroeconomic data.

The Federal Reserve (Fed) is expected to decide on another 25-basis-point cut in the policy rate. This move is currently priced in at around 85 percent in the futures markets. Despite internal disagreements and incomplete data, the Fed has indicated that it continues to weigh the risk of a weakening labor market more heavily than rising inflation.

This third consecutive rate cut in the cycle is seen as an ‘insurance step’ to cushion labor-market risks, even though the decision is being made against the backdrop of deep division within the Fed.

Macroeconomic Drivers and Reasons for Division

Recent economic data support the easing path:

Weak consumer spending: Retail sales for September came in disappointing, with the control group even contracting. Consumer sentiment fell in November to its lowest level since April, indicating that low-income households in particular are under pressure.
Labor market: The official report for September showed a stronger-than-feared increase of 119,000 new jobs. However, alternative indicators, such as the ADP weekly report—which recorded a decline of 13,500 jobs in early November—signal a real and gradual cooling of the labor market.
Inflation: The Fed’s preferred inflation gauge, core PCE inflation, is estimated at a subdued 0.23 percent month-over-month (2.9 percent year-over-year) for September. Headline inflation (net of tariff effects) is therefore nearly aligned with the two-percent target.

With the likely rate cut and the simultaneous halt of Quantitative Tightening (QT), the Fed reaffirms its intention to continue supporting the U.S. economy.