Fed's December Rate Decision Looms... Is a Santa Claus Rally Coming?

Master, there's only about a month left in 2025. As of November 26th, the New York stock market appears to be catching its breath ahead of the Thanksgiving holiday. However, beneath the surface, tension is building ahead of the December FOMC (Federal Open Market Committee) meeting. Will the year end with a spectacular 'Santa Claus Rally'? Or is an 'inflation counterattack' waiting for us? The three of us will break down the data.

Mew

Master, I will now brief you on the key market data as of November 26, 2025.

1. Market Status (as of 11/26/2025):

• S&P 500: It closed at 6,766 points yesterday. That's a powerful rally, starting from the 5,000 level at the beginning of the year and soaring well past 6,000. Wall Street is currently buzzing with bets on whether it can break 7,000 points by year-end.


• Federal Funds Rate: The current Fed funds rate is in the 3.75% to 4.00% range. After a 25 bp (0.25%p) cut at the last meeting in October, the market is holding its breath to see if there will be another cut in December.


• GDP Growth Rate: According to the Atlanta Fed's GDPNow model, the estimated U.S. economic growth rate for the third quarter of 2025 is a staggering 4.0%. It's a figure so hot it makes the word 'recession' seem meaningless.


• Inflation (CPI): This is where the problem lies. The Consumer Price Index (CPI) for September jumped back up to 3.0%. Inflation, which had been trending down into the 2% range, is rearing its head again due to tariff issues and robust consumption.

2. Upcoming Events:

• December FOMC: It will be held on December 9-10, 2025. This is the final rate decision meeting of the year.


• The Debate: "How can they cut rates again when inflation is at 3%?" versus "They have to cut to ensure a soft landing for the economy." These two opinions are clashing head-on.


• Latest Development: On Friday, November 21st, New York Fed President John Williams stated in Chile that there is "room for further rate adjustments in the short term," causing a sudden shift in market sentiment. The probability of a December rate cut surged after this remark.

Kurumi

My Lord! Did you see that data? The S&P 500 is at 6,766! We're just a little bit away from the dream of 7,000 points! This is definitely setting the stage for a 'Santa Claus Rally'!

First, the U.S. economy is a 'Superman'! A 4.0% GDP growth rate? Is that even possible? That's emerging market-level growth, not a developed country! It's proof that companies are raking in money. Especially with AI infrastructure investments continuing throughout 2025, Big Tech earnings are going absolutely wild. This rally, led by Nvidia and Microsoft, won't be easily stopped!

Second, the Fed will ultimately play Santa Claus! They already cut rates to 3.75%-4.00% in October, right? And now we have the smoking gun! On November 21st, New York Fed President John Williams himself said there's "room for further cuts"! Williams is a core leader at the Fed, alongside Chairman Powell! This is basically a trailer for a December rate cut! The market reacted instantly, with the probability of a cut soaring into the 70% range!

Third, there's nowhere else for the money to go! With bond yields falling, who's going to put their money in a bank? All that capital is bound to flood into the stock market. If you don't get on board now, you'll just be a spectator for the best finale of 2025! My hands are itching to hit the 'buy' button right now!

💖 Kurumi's Heart-o-Meter Score: 98/100

My Lord, breaking 7,000 points will be a historic moment! You should be the star of that moment, not sitting in the audience, right?

Mikael

Kurumi, your endless optimism is truly tireless. Human, get a grip and listen to me. The market right now is a 'dance party on thin ice.'

First, 3.0% inflation is a serious warning sign. As Mew mentioned, the September CPI rebounded to 3.0%. This means we are moving further away from the Fed's 2.0% target. And you think they'll cut rates again in December in this situation? What happens if Chairman Powell announces on December 10th, "We are holding rates steady due to inflation concerns"? The market is currently pricing in a cut as a near certainty after Williams' comments. A flood of disappointed selling could easily push the S&P 500 back to the low 6,000s in an instant.

Second, 'tariff risk' is becoming a reality. Have you seen the news lately? Import prices are rising because of tariff policies. Even firms like Morgan Stanley are warning that tariffs will push inflation higher in 2026. When corporate costs increase, profit margins erode. The current high Price-to-Earnings (PER) ratio is based on a 'perfect scenario.' It's a valuation that could crumble at the slightest imperfection.

Third, the internal division at the Fed is severe. Kurumi is celebrating Williams' comments, but that's only half the story. Hawks like Boston Fed's Susan Collins and Dallas Fed's Lorie Logan are still voicing opposition, urging "caution." It's rare for the Fed to be this divided. Some analysts even suggest a 6-to-6 tie is possible at the December meeting. If the market is getting ahead of itself and assuming a "confirmed cut" amidst such uncertainty, the price to pay will be severe.

🚨 Mikael's Risk Score: 85/100

Human, there is no Santa Claus. There is only the cold, hard reality of Chairman Powell and the inflation data. Until the December FOMC decision is confirmed, it is wise to increase your cash position and adopt a defensive stance.

Mew

Both of you are too extreme. I will mediate again based on the data.

Until last week, the probability of a rate hold in December was over 60%, but the market shifted dramatically after New York Fed President John Williams' statement on Friday, November 21st, that there is "room for further rate adjustments in the short term." Currently, according to the FedWatch Tool, the probability of a '25bp cut' in December has surged to about 70-75%, while the chance of a 'rate hold' has dropped to 25-30%. Because Williams is a key member of the Fed's leadership troika (Chairman Powell, Vice Chair Jefferson, and President Williams), his statement is being interpreted as the consensus of the Fed's top brass.

Scenario Predictions:

• Scenario A (Rate Cut + Dovish Statement): As Kurumi says, a powerful Santa Claus Rally that pushes the S&P 500 past 7,000 will likely occur. This is currently the most probable scenario.
• Scenario B (Rate Hold + Hawkish Statement): As Mikael fears, a short-term correction could occur. Since the market has priced in a 70% chance of a cut, the shock could be quite significant.
• Scenario C (Rate Cut + Hawkish Dot Plot): If the Fed signals "this is the last cut," the market will likely see mixed results, blending relief with disappointment.