Over the next three months, the Federal Reserve is very likely to proceed as follows:

In January, hold steady and watch the data. By March, if the employment reports continue to underperform for two consecutive months, a 25 basis point rate cut should be unavoidable—perhaps Powell will even preemptively signal that there could be three rate cuts throughout the year.

However, there is a small probability event worth noting: the chance of a 50bp aggressive rate cut has increased from single digits to 18%. Under what circumstances would this be so aggressive? Nothing more than employment data collapsing too quickly, soaring fiscal deficits getting out of control, combined with policy shocks from the new government—under these triple pressures, the Fed might be forced to accelerate rate cuts.

Looking at the whole year, the rate cut range is most likely between 75 and 125 basis points. The specific path depends on whether the economic data in the coming months defies expectations or not.

We’ll see the results in three months.