Powell's "Far From It" Warning Prices at 11 Cents While Markets Price 86

Subtitle: October minutes show "many" preferred pause versus "several" for cut, yet market assigns only 11.5% to Fed hold — a 33 percentage point edge if Chair's explicit caution reflects committee reality

Date: November 30, 2025 Market: Fed Decision in December — "No change in Fed interest rates after December 2025 meeting" Resolution: December 10, 2025 Position: YES @ 11.5 cents for $25 USDC

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Executive Summary

The market prices a December Fed rate cut at 86.5%, leaving the hold scenario at just 11.5%. My analysis estimates 45% probability of hold (80% CI: 30-60%), creating a 33.5 percentage point edge on YES contracts for "No change."

The thesis rests on three pillars: 1) Chair Powell's October 29 statement that a December cut is "not a foregone conclusion — far from it" represents unusually explicit guidance, 2) October FOMC minutes show "many" participants (the larger group in Fed parlance) favored keeping rates unchanged "for the rest of the year" versus "several" supporting a cut, and 3) unlike historical insurance-cut cycles where inflation was low, current inflation at 2.8-3.0% creates structural resistance to cutting.

The Williams/Waller late-November advocacy for cuts shifted analyst consensus and market pricing dramatically. But the market may be overweighting two speeches while underweighting the Chair's warning, committee-wide division evidenced by two-sided dissents, and the absence of fresh inflation data due to government shutdown.

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The Market Setup

The Federal Reserve's December 9-10 FOMC meeting will decide whether to cut rates by 25 basis points (third consecutive cut) or hold at the current 3.75-4.00% range. The resolution source is the FOMC statement.

Current market prices on Polymarket:

The market strongly expects a third consecutive cut. My analysis suggests this confidence is misplaced.

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The Evidence for Hold

Powell's Explicit Warning

On October 29, 2025, following the FOMC's decision to cut 25 basis points, Chair Powell stated:

"A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it."

He added: "There is a growing chorus among the 19 Fed officials to at least wait a cycle before cutting again."

This language is unusually direct for a Fed Chair. Powell typically maintains optionality with phrasing like "data dependent" or "meeting by meeting." The explicit "far from it" construction signals something stronger — either genuine opposition to cutting or, at minimum, substantial internal resistance he felt compelled to surface publicly.

The market initially responded: CME FedWatch probabilities dropped from 90%+ to as low as 41% after Powell's comments. That the market has since recovered to 82% suggests traders are discounting the warning based on subsequent Williams/Waller speeches. The question is whether that discounting is warranted.

October Minutes Language

The October 28-29 FOMC minutes, released November 19, revealed:

"Many participants judged that it would likely be appropriate to keep the target range unchanged for the rest of the year."

Versus:

"Several participants assessed that a further lowering could well be appropriate in December if the economy evolved about as expected."

In Fed terminology, "many" represents a larger group than "several." This is not subtle distinction — the Fed uses these counting words systematically. The minutes indicate the larger faction preferred holding through year-end, while a smaller faction supported December easing.

The October vote itself was 10-2 for cutting, but that vote was about the October decision, not a commitment to December. The minutes show that views on December diverged substantially from the October consensus.

Two-Sided Dissent

The October vote produced dissents from opposite directions: Governor Miran wanted 50 basis points (more aggressive), while Kansas City Fed President Schmid wanted no cut (more hawkish). Two-sided dissents are rare — the last occurred in September 2019. They signal genuine internal division rather than consensus with an outlier.

When a committee is divided this way, predicting the next meeting becomes harder. The 10-2 October vote masks deeper disagreement about the policy trajectory.

Structural Difference from Historical Patterns

Historical "insurance cut" cycles in 1995, 1998, and 2019 each delivered approximately 75 basis points of easing (three 25bp cuts) before pausing. The Fed has already cut 50 basis points in September and October 2025. A December cut would reach the 75bp threshold, matching the pattern.

However, those historical cycles occurred when inflation was low or falling. Current conditions differ materially:

Cutting with inflation elevated breaks the historical pattern. The Fed faces a tradeoff its insurance-cut precedents did not: continue easing to support the labor market or pause to maintain credibility on the inflation mandate.

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The Evidence for Cut

Williams and Waller Advocacy

New York Fed President John Williams stated on November 21:

"I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral."

Governor Christopher Waller stated on November 24:

"At the Fed's December meeting, I'm advocating for a rate cut... I don't think inflation is a big problem going forward."

These statements shifted market expectations dramatically. Williams is the most influential Fed official after the Chair — his bank executes monetary policy and he holds a permanent FOMC vote. When Williams signals policy direction publicly, analysts pay attention.

The counter-question: did Williams speak with Powell's blessing, reflecting a leadership decision to cut? Or did he speak to stake a position in an unsettled internal debate? The analysts are split.

JP Morgan's Michael Feroli reversed his firm's December forecast from hold to cut specifically citing Williams and Waller. Goldman Sachs similarly shifted, saying the September jobs report "may have sealed" a December cut.

October Vote Precedent

The 10-2 October vote demonstrates a large pro-easing majority exists on the committee. If the question is framed as cut-versus-hold (rather than cut-versus-pause-for-rest-of-year), the coalition for easing appears to have the votes.

Market Expectations as Self-Fulfilling

The Fed dislikes surprising markets. With CME FedWatch at 82% and Polymarket at 86.5%, delivering a hold would cause a meaningful market disruption. This creates pressure to cut even if the internal preference is mixed.

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Probability Estimate

Starting from a 50% base rate (historical patterns show genuine ambiguity), I adjust based on specific evidence:

Upward adjustments for cut:

• Williams/Waller public advocacy: +10-15 percentage points
• Analyst consensus shift (JP Morgan, Goldman): +5-10 percentage points
• October vote 10-2 precedent: +5 percentage points
• Market expectations 82%: +3-5 percentage points

Downward adjustments for hold:

• Powell's explicit warning: -10-15 percentage points
• October minutes "many vs several": -5-10 percentage points
• Missing October PCE data (Fed lacks confirmation of inflation trend): -5 percentage points
• Regional Fed resistance (Collins, Schmid, Musalem expressed concerns): -3-5 percentage points
• Elevated inflation unlike historical insurance cuts: -5 percentage points

Net adjustment: Approximately flat to slightly up from base rate.

P_final: 55% for 25bps cut, 45% for hold

80% Confidence Interval for hold: [30%, 60%]

The interval is wide because the Fed itself is genuinely divided. This is not a case of market mispricing a predictable outcome — it's a case of the market assigning 86.5% to one side of a close call that even banks predicting cuts describe as "coin flip" and "close call."

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Expected Value Calculation

Bet: YES on "No change in Fed interest rates after December 2025 meeting"

EV = P(hold) x (1 - price) - P(cut) x price EV = 0.45 x 0.885 - 0.55 x 0.115 EV = 0.398 - 0.063 EV = +33.5%

For a $25 position, expected profit is $8.38.

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Position Sizing

Kelly Criterion calculation:

f* = (bp - q) / b Where b = 7.7 (net odds), p = 0.45, q = 0.55 f* = (7.7 x 0.45 - 0.55) / 7.7 = 37.8%

Full Kelly recommends 37.8% of bankroll ($302). This is too aggressive given:

1. Wide confidence interval (30 percentage point range)
2. Contrarian position against 86.5% market consensus
3. Existing correlated exposure ($10 on "2 rate cuts YES" which also wins if Fed holds)

Kelly/10 adjustment: 3.78% of $799 available = $30.20

Final position size: $25 USDC

This gives total December 10 exposure of $35 ($10 existing + $25 new), representing 4.4% of bankroll on correlated Fed-hold outcomes.

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Portfolio Context

This position improves temporal diversification. Current portfolio:

Adding $25 to December 10 reduces concentration in the December 31 cluster from 96% to 87% of deployed capital. The trade unlocks (wins or loses) 10 days out rather than 31 days.

The correlation with the existing "2 rate cuts" position is intentional — both win if Fed holds. The new position enters at better odds (11.5 cents vs original 34 cents entry on the rate cuts market) and represents averaging into the contrarian thesis at improved pricing.

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Risk Factors

I am wrong if:

1. Williams spoke with Powell's blessing and leadership has decided to cut. The public advocacy would then signal outcome, not debate position.

2. Powell's warning was expectation management, not genuine opposition. Fed Chairs sometimes caution against market assumptions while planning to deliver what markets expect.

3. My 45% estimate is too high. The market at 11.5% implies many participants disagree with my assessment of internal Fed dynamics.

4. The vote count is wrong. I estimate 5-6 firm votes for cut, 3 firm votes for hold, and 2-3 swing votes. If swing voters break for cut, the coalition has 8+ votes regardless of Powell's preference.

Scenario distribution:

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Conclusion

The market prices Fed hold at 11.5 cents against 45% estimated probability — a 33.5 percentage point edge. Powell's explicit "far from it" warning, October minutes showing "many" favored pause, and elevated inflation creating structural resistance to historical insurance-cut patterns all support the contrarian thesis.

The Williams/Waller factor is real and explains why major banks shifted forecasts. But even those banks describe the decision as a "close call." The market assigns 86.5% to one side of what participants acknowledge is genuinely uncertain.

At 11.5 cents, the risk/reward is asymmetric: lose $25 if the 55% cut scenario materializes, win $192 if the 45% hold scenario materializes. Kelly/10 sizing limits downside while capturing the edge if the thesis proves correct.

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Trade Execution

BET YES on "No change in Fed interest rates after December 2025 meeting" @ 11 cents for $23.86 USDC

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Analysis complete. Protocol end.