Wednesday’s actions during the Federal Reserve’s Federal Open Market Committee’s meeting would have seemed like the beginning of better times not long ago. Now? Conditions are hazy, the Trump administration is still suddenly changing tariff conditions out of personal animus and not cogent national interests, inflation continues to rise, and the labor market gets weaker.
Stagflation may or may not be coming, but the biggest issue for consumers, for businesses, for governments, is the lack of certainty. Risk continues to grow. However, unlike investing, looking for higher pay-offs to justify a precarious position doesn’t work.
Backed Into A Corner
The Fed did not make a decision out of strength and clarity. Instread, as Dario Perkins, managing director of global Macro at GlobalData.TS Lombard wrote, “It is a tired, eyeroll-deserving cliché to say the Fed is ‘backed into a corner’ but that phrase has had an unusual ring of truth to it in 2025.”
Conditions have brewed and condensed into economic fog, started, as Perkins said, with eight months of paralysis by uncertainty from Donald Trump’s White House. There would be tariffs, and then there wouldn’t but, but there would be, but not … and so it has gone. The latest example of wavering was the imposition of another 10% tariff on Canada because of an ad run there that happened to quote Ronald Reagan’s dislike of tariffs because “over the long run such trade barriers hurt every American worker and consumer.”
Then, as the Fed “thought they had a handle on how the administration’s policies were shaping up,” Perkins wrote, “the government went into shutdown and the statistical authorities stopped publishing anything useful.”
There were the inflation numbers from September, but they were pushed through even though other reports weren’t because the Social Security Administration needed them to calculate the annual cost of living adjustments.
There are private data sources, but nothing has the breadth of what the Bureau of Labor Statistics, even if criticized for large adjustments to jobs numbers, and Census Bureau typically deliver. As Perkins wrote, the Fed is in a “data vacuum.”
Markets Wince When A December Cut Isn’t Guaranteed
The Fed drives decisions based on data that it can’t currently get. They face what seems to be a softening labor market — young grads having a much higher unemployment rate than average, and growing longer-term unemployment out of historical patterns — and inflation that is growing. Granted, it is only at 3%, which seems laughably small if you lived through the 1970s and 1980s, but it is trending up again.
Those two dynamics typically require different types of actions from the Fed, with higher interest rates to cool inflation and lower ones to stimulate business and hiring. When both are needed at the same time, the Fed is left struggling to decide what to do.
When asked about a possible rate cut at the FMOC’s December meeting, Fed Chair Jerome Powell said during the press conference after the FOMC meeting, “A further reduction in the policy rate at the December meeting is not a foregone conclusion.”
Markets wigged out. All the equity indexes started dropping and the yield on the 10-year Treasury Note started climbing again, which is a signal to markets to increase.
Uncertainty has hiked and looking for a financial seat belt, if available, is a wise step.