Due to the uncertainty regarding how President-elect Trump's policy intentions will affect key areas of the U.S. economy, a rate cut by the Fed in December no longer seems like a done deal.

According to the CME Group's FedWatch Tool, traders believe there's barely a 50% chance that the Fed will lower the benchmark interest rate at its meeting on December 17-18. Just a few weeks ago, that implied probability was over 80%, nearly a done deal.

What exactly has changed in just a few weeks?

The main reason is that the market is still speculating on to what extent Trump's victory and policies will stimulate the economy and how much inflation they will push up.

The current situation and questions about unknown factors have led Charles Schwab's strategists to call for the Fed to pause action next month and observe how things develop. Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, said last week, "At this moment, I think the uncertainty is very high, everything is in flux, and it could go in many different directions. I think the Fed might need to take a step back, take a breather, and say, 'You know what, we need to sit down and watch how this unfolds.'"

For her part, Jones said she will be watching for clues regarding policymakers' intentions in the Fed's minutes from its November meeting, which will be released on Wednesday.

Jones's colleague Liz Ann Sonders at Charles Schwab agreed, pointing out that corporate leaders find it difficult to distinguish between noise and reality. "If you are a corporate leader trying to plan, then you have to be in a wait-and-see mode to deal with policies like immigration and tariffs."

Sonders said, "So I think we might be at a standstill in cyclical activity as businesses wait for policy proposals to turn into actual policy."

Last Friday, Trump announced that he would nominate hedge fund executive Bessent as Treasury Secretary. In a recent interview, Bessent advocated for a gradual implementation of tariffs and insisted that Trump has no intention of pushing up inflation.

Nevertheless, the market-based inflation measures are still rising. The 5-year breakeven rate is just below its highest level in a year, while U.S. Treasury yields remain well above the levels when the Fed started cutting rates in September.

As investors continue to weigh the prospects of Fed policy, Monday's market rebound also lost some momentum. The S&P 500 and the Nasdaq Composite gave back about 65% to 75% of their early gains by the close of the day. Sonders said, "It's hard to argue against the notion that tariffs would slow growth and push up inflation. In the extreme cases of the proposals put forward, they are highly inflationary, and when you consider all these factors, you would say, why does the Fed need to act now, especially in light of the many uncertainties about how future policy will affect inflation?"

Article reposted from: Jin Ten Data