The Federal Reserve (Fed) meets this week for its final decision of the year, and investors think they know which way it’s leaning. They’ve laid odds on a 90% chance of another interest rate cut. After all, the job market’s weakened, growth risks have crept up, and borrowing rates are sitting uncomfortably high for an economy that’s clearly cooling. Inflation is still well above the Fed’s 2% target, and policymakers aren’t exactly unanimous in their outlook, but they mostly agree on one thing: the bigger risk is keeping rates too high for too long. 

Still, you can’t say the data’s been crystal clear. The government shutdown has made key releases messier than usual. So while some of the Fed’s members think the US is in a real slowdown, others aren’t so sure. That group’s been warning that back-to-back cuts could heat inflation back up again. With that debate still raging, there’s still a chance that the Fed will keep rates right where they are – for now. 

The bigger question isn’t about this meeting – it’s about what comes next. The Fed is facing its widest disagreement in years about where the “neutral rate” is – basically, the level where interest rates stop pushing the economy up or down. The policymakers’ estimates now span the broadest range in over a decade, and that disagreement matters: it makes the path forward harder to map. The Fed’s key rate is already near the upper edge of some officials’ neutral-rate estimates, so every new cut becomes a tougher sell. 

While everyone’s focused on the rate cut odds, there’s a subplot bubbling up: liquidity. The Fed just wrapped up balance-sheet tightening, and money markets are starting to feel the pinch. So the Fed may soon roll out “reserve management purchases” – small, technical buys of ultra-short Treasury bills to keep things running smoothly. It’s not stimulus; it’s more like maintenance. But if it suddenly becomes the headline, you’ll know why.