Fed Showdown Wednesday: The Cut That Could Rock Markets Into 2026

BY BILL GRIFFO

December 11, 2025

Hey Income Hunters,

Buckle up — Today’s Fed meeting may be the most contentious in years. Markets expect a cut… but the type of cut matters far more than the cut itself.

And this time the stakes are higher:

Powell is battling a divided FOMC
Politics are banging on the Fed’s front door
Inflation is sticky near 3%
Employment is softening — but not collapsing
And markets are assuming the new likely Fed Chair, Kevin Hassett, will force aggressive cuts next year

As we wrote in Powell Surrenders… Year-end Blow-Off Ahead and The New Federal Reserve and What It Means for You , investors must prepare for a world where politics and policy collide head-on.

The Core Question: Hawkish Cut or Dovish Cut?

The Fed is 99% likely to cut 25 bps — but the message around the cut is where markets will live or die.

Let’s break down the two outcomes:

Scenario A: The Hawkish Cut (Most Likely)

This is Powell’s classic playbook: give the market the cut it wants, but take away the promise of more.

How they do it:

Dot plot shows 0–1 more cuts in 2025
Statement changes from “considering additional adjustments” to “considering the extent and timing of adjustments” (same language used in Dec 2024 before a long pause)
Powell emphasizes:
- inflation still ~3%
- labor market soft but not broken
- financial conditions too loose
- risks of cutting into stimulative territory

Why it matters:

This mirrors December 2024 — the Fed cut once, the market expected more… and SPX fell 3% during Powell’s presser.

This outcome is very possible again.

Market Reaction:

Stocks likely sell off 2–4%
Bond yields rise on “fewer cuts ahead”
USD strengthens
Cyclicals underperform defensives
Gold initially dips then rebounds (as we saw after Jackson Hole)

Portfolio Action:

✔ Reduce high-beta tech
✔ Maintain gold & silver exposure (as outlined in our August Fed restructuring piece)
✔ Hold cash & short-term T-Bills
✔ Consider puts on TLT and QQQ (per our 8/11 note)

Scenario B: The Dovish Cut (Less Likely — and More Dangerous)

This is the outcome markets want — but it comes with big 2026 risks.

How it would look:

SEP shows 2–3 more cuts in 2025
Powell highlights rising unemployment risk
Powell avoids referencing “neutral” or “restrictive”

Portfolio Action:
✔ Stay long metals
✔ Add to utilities & healthcare (as seasonal yield trades pick up)
✔ Increase equity exposure selectively
✔ Expect blow-off top into Q1 before a 2026 reckoning

This is the “Powell Surrenders” path we outlined in late August.

If the Fed cuts too far below neutral now, inflation reignites in 2026 — the very outcome that forces a hard recession later.

This is the risk Income Hunters must understand.

What to Watch Wednesday at 2:30 PM ET

1. The statement change

If they remove the phrase “additional adjustments” and add “extent and timing,” it’s a hawkish cut.

2. Dot plot expectation for 2025–2026

Less than two total cuts = hawkish
Two or more = dovish

3. Tone of Powell’s presser

Mentions of “neutral” = bearish
Mentions of “risks to employment” = bullish
Mentions of “financial conditions” = bearish
Mentions of “uncertainty” = mixed
4.Dissent count

Two or more dissents = hawkish shock

Power Income Portfolio Guidance Into Year-End

If hawkish cut (base case):

✔ Add hedges
✔ Trim growth tech
✔ Increase gold, silver, BTC
✔ Rotate from long-duration bonds into T-Bills 10-year UST may rise to 4.30% – 4.35%
✔ Maintain TIPs exposure (as we explained in our China conflict issue)

If dovish cut (low probability but explosive):

✔ Stay long risk assets into December
✔ Add utilities & healthcare for 2025 yield chase
✔ Keep accumulating gold & bitcoin — a dovish Fed accelerates the hard-asset supercycle