From its peak on October 28, 2025, the S&P 500 recently logged its first five percent pullback since April 2025, when the fallout from President Donald Trump’s so-called “Liberation Day” rattled markets with the announcement of unexpectedly high tariff rates.
The index corrects by five percent roughly every 100 days on average; the most recent stretch approached 229 days. Besides simply being overdue and all the clickbait headlines of a bubble in artificial intelligence stocks spooking investors, I believe the primary reason that stocks took the gut punch was because on October 29, 2025, Federal Reserve Chairman Jerome Powell surprised investors by declaring that an interest rate cut at its next meeting should not be viewed as a sure thing. Specifically, Powell said, “a further reduction of the policy rate at the December meeting is not a forgone conclusion. In fact, far from it.”
One of the reasons I have given for my bullish equity stance is that the Fed has been accommodative in its monetary policy. There is a simple 55-year-old tried-and-true investment saying: “Don’t fight the Fed.” Martin Zweig, a renowned investor and market forecaster, coined that term in 1970. The Fed’s monetary policy is typically a significant factor in determining the direction of the stock market. In other words, if the Fed cuts interest rates, the lower borrowing costs should stimulate the economy, improve corporate earnings, and lift stock prices.
The Fed had cut interest rates by one quarter of a percentage point at two consecutive meetings (September and October 2025), bringing the range to 3.75 percent to 4.00 percent. After Powell’s remarks, the odds of an interest rate cut at the Fed’s next meeting, on December 10, quickly dropped from a near certainty to that of a coin flip. If I am right and that is why stocks have corrected, it is logical to conclude that if the market does not get the cut it wants at the next Fed meeting, then prices could have more downside. The good news is that the futures market has rebounded somewhat, putting the odds of a rate cut at about three in four. However, I do not expect the Fed to cut—they will pause.
Not that I have an unwavering conviction in predicting what will happen in December. If you read the latest Fed minutes, it is clear that what happens at the December 10 meeting is very much up for grabs.
The disagreement starts with the basic diagnosis. Growth looks moderate, the labor market is cooling but not collapsing, and inflation has drifted up to around 2.7 percent, still above the two percent target and higher than earlier in the year.
Tariffs are adding some temporary price pressure, but a few officials believe the price hikes are only temporary and that inflation will get back to target in a year or so. Others focus on the fact that inflation has been above two percent for years and has shown few signs of settling back in a timely way.
On the jobs side, hiring has slowed, unemployment has ticked up, and Fed officials see downside risks to employment.
That mix of data produces a very split December outlook by the Fed members. The minutes say “several” participants think another one-quarter percentage point cut “could well be appropriate,” while “many” suggest it would likely be better to keep rates unchanged for the rest of the year. “Most” still expect further cuts over time as policy moves toward neutral, just not necessarily on a preset schedule. Everyone agrees the risk-management problem is now truly two-sided: ease too slowly and the labor market could crack; ease too fast and three percent inflation could become the new normal.
Outside the minutes, recent speeches help us put some numbers on the split among the 12 voting members. On the clearly pro-cut side, four voters clearly want to lower rates.
- Fed Governor Christopher Waller just delivered a speech titled “The Case for Continuing Rate Cuts,” explicitly arguing that another cut is “in order,” given a weakening job market.
- Governor Stephen Miran keeps pushing for at least a quarter-point move (and would prefer a half point) in December.
- Vice Chair Michelle Bowman has called for “decisive” cuts to get ahead of labor-market risks.
- New York Fed President John Williams has now said there is “room for a further adjustment in the near term,” which, given his stature, markets heard as an open endorsement of another cut.
On the other side, five voters are leaning toward a pause unless the data really crack.
- Boston Fed President Susan Collins has said she is skeptical another cut is needed and that current policy is “restrictive” enough for now.
- Kansas City’s Jeffrey Schmid, who dissented against the October cut, says it would be “hard to support” cutting again without much better inflation news and worries that more easing would entrench higher prices.
- St. Louis President Alberto Musalem talks about “limited room” for further easing and the need to keep “leaning against” inflation.
- Chicago’s Austan Goolsbee says he is “uneasy” about “front-loading” cuts while data are missing because of the shutdown.
- Governor Michael Barr has been unusually explicit that, with inflation still around three percent, the Fed must be “careful and cautious” about additional cuts.
That leaves three voters, Chair Jerome Powell, Vice Chair Philip Jefferson, and Governor Lisa Cook, publicly in the middle. Powell has made it clear that a cut is not a foregone conclusion, but he also has not made the case for any particular action or inaction. Jefferson has acknowledged that the balance of risks has shifted toward the labor market but pairs that with a call to “proceed slowly” as the Fed nears a neutral rate. And Cook keeps highlighting the tension between the Fed’s employment and inflation goals without tipping her hand on December.
Should the three fence-sitters be persuaded to vote for a cut, the vote would be 7–5 in favor of the cut. However, the Federal Reserve has never cut interest rates with more than three voting members dissenting. In fact, at least in modern times, the most dissents there ever were at a rate-cut meeting were three, in September 2019. That does not make it impossible—things that have never happened before happen all the time. Still, I do not expect a cut.
Not getting that cut could spell bad news for the stock market—not necessarily for the economy, but for the market itself. Nonetheless, I am confident that the Fed will cut rates considerably in the second half of 2026, so I feel that if the Fed pauses at its next meeting, my investment portfolios might get smacked around the rest of the year but will recover later. Therefore, I am currently maintaining the equity positions in my portfolios.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $1 billion of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representation that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
