Fed December Preview: Three Prints That Decide the 68% Hike Odds

The Federal Reserve held at 3.75%-4.00% on October 28 and handed the December 9-10 meeting a genuinely two-sided risk. Markets spent the week repricing it: a hot September PCE print at 3.1% pushed implied odds of a December quarter-point hike to about 78%, Friday's soft October payrolls report — 125,000 jobs against a 140,000 consensus, wage growth down to 3.5% — pulled them back to roughly 68%. The Fed is still steering into a supply-driven energy shock with headline CPI at 3.7%, and the futures market is now pricing a coin flip with a tilt.

The first decisive input lands Wednesday, November 4: the ISM services index, with consensus at 53.2. The sub-index that matters is prices-paid — the stock market's Friday rally was built on the assumption that it cools, and a print above 58 would revive the hawkish December narrative within hours, per the framing in this week's calendar. Five FOMC voters speak between Tuesday and Friday, and the Treasury's quarterly refunding lands Wednesday; every one of those events is a live test of a 68% probability that sits close enough to the midpoint to move materially on a single speech.

The inflation side of the mandate is unresolved. September PCE held at 3.1% with the core at 2.8%, and the October CPI release in mid-November plus the late-November PCE print are the last full inflation reads before the meeting. Brent settled Friday near $113.40, a second straight weekly close above $113, and the pass-through into goods and services prices is exactly what keeps the Committee's hawkish wing alive even after a weak labour report. A core CPI tick back above the September pace would likely put December-hike odds back above 80%.

The labour side argues the other way. October hiring was the slowest since April, the unemployment rate rose to 4.3% from 4.2%, and average hourly earnings decelerated to 3.5% year over year — the slowest since early 2023. The November employment report, due Friday, December 4, is the final macro input before the vote. A second sub-150,000 print with cooling wages would tip the odds below 50% and turn December into a live hold, no matter what ISM says.

The scenario map is unusually binary. A hot prices-paid ISM plus firm CPI leaves the Committee leaning to hike, with two-year yields likely back above 3.80% and the dollar index, which ended the week near 101, bid again. Soft ISM and a second weak payrolls print leaves December as a hold with a dovish lean, extending the rally that took gold to a record $2,847 and bitcoin back through $82,000.

Positioning across assets already expresses both tails. The 2s10s curve steepened modestly off its most inverted level of the month after payrolls, gold is holding its fourth straight weekly gain on the bet that real yields have peaked, and equities are within 2% of their early-October record. The December meeting is not about the 25 basis points — 3.75%-4.00% to 4.00%-4.25% is a rounding error. It is about whether the Fed validates the market's soft-landing pricing or the inflation impulse coming out of the energy complex.