What's next for the Fed?

What It Covers

Federal Reserve prepares for December rate decision amid delayed economic data from government shutdown. Bond markets signal concerns about Fed independence. Child care costs rise 30% since 2020, forcing families to reconsider employment decisions.

Key Questions Answered

• •Fed Rate Trajectory: Economists predict federal funds rate will drop to 2.75-3.25% by December 2026, down from current levels, as inflation moderates and shelter costs gradually align with market rates, though uncertainty around tariffs and growth could force rate reversals.
• •Labor Market Softening: Small businesses show fewer job creations and labor market weakness, particularly significant since October unemployment data was never released due to shutdown. This missing data complicates Fed's dual mandate assessment of maximum employment alongside price stability.
• •Child Care Economics: Average child care costs jumped nearly 30% between 2020-2024. Bank of America data shows households paying for child care declined 1.5% year-over-year, while dual-income households also decreased as families recalculate whether second incomes justify expenses.
• •Bond Market Independence: Historical comparison to 1970s-80s when Fed chairs Burns and Miller yielded to presidential pressure, allowing inflation to reach 13%, required Paul Volcker's severe rate hikes causing double-dip recession. Bond investors demand Fed autonomy to prevent repeating this scenario.