2025 December: Delayed September Inflation Data and Fed Rate Cut Expectations Impact Markets

This analysis is based on the Forbes report [1] published December 5, 2025, covering delayed September 2025 inflation data impacted by a prior government shutdown [3][4]. The core PCE price index (Fed’s preferred inflation gauge) dropped to 2.8% YoY in September (from 2.9% in August), a positive surprise that reinforced market expectations for a rate cut at the Fed’s upcoming meeting [3][4]. Traders priced an 87.2% probability of a 25-basis-point cut (to 3.5%–3.75%) via the CME FedWatch Tool [6], with odds rising due to dovish Fed comments and softer economic data.

On December 5, U.S. equities showed muted reactions: the S&P 500 (+0.15%) and Dow Jones Industrial Average (+0.21%) edged higher, while the NASDAQ was flat and Russell 2000 (-0.04%) declined slightly [0]. This muted response reflects that rate-cut expectations were already priced into markets [6]. Sector performance varied, with communication services (+1.97%), real estate (+1.79%), and energy (+1.49%) leading gains—benefiting from rate-cut support for interest-sensitive sectors (real estate) and improved economic sentiment [0]. Utilities (-1.80%) and healthcare (-0.81%) underperformed, with utilities facing headwinds from reduced interest rate support [0]. The U.S. dollar hovered near a five-week low, as lower rate expectations diminished its yield appeal [7].

1. Data Latency Challenges
   : The three-month delay in September inflation data complicates the Fed’s decision, as policymakers must balance backward-looking inflation trends with more recent economic indicators (e.g., October/November job market data) [3][4].
2. Priced-In Expectations
   : The modest market reaction indicates that the 87% rate-cut probability was largely priced in before the Forbes report’s release [6].
3. Sector Sensitivity
   : Interest-sensitive sectors like real estate outperformed due to rate-cut optimism, highlighting market segmentation based on policy expectations [0].

• Risks
  :
  • The Fed may surprise markets by pausing rate cuts if policymakers remain concerned about inflation staying above the 2% target, despite September’s improvement [3][6].
  • Dissent from hawkish Fed officials could signal divided policy views, reducing market expectations for future 2026 rate cuts [6].
  • Data latency introduces uncertainty about how the Fed will interpret outdated inflation figures relative to recent economic trends [3][4].
• Opportunities
  :
  • A rate cut could continue supporting interest-sensitive sectors (real estate, communication services) and reduce borrowing costs for businesses and consumers [0].
  • A weaker U.S. dollar may benefit exporters by making U.S. goods more competitive internationally [7].

• Inflation Data
  : Delayed September core PCE (Fed’s favorite gauge) was 2.8% YoY, down from August’s 2.9% [3][4].
• Rate-Cut Expectations
  : 87.2% probability of a 25-basis-point cut to 3.5%–3.75% at the December 9–10 Fed meeting (CME FedWatch Tool) [6].
• December 5 Market Moves
  : S&P 500 (+0.15%), Dow (+0.21%), NASDAQ (flat), Russell 2000 (-0.04%) [0].
• Top/Bottom Sectors
  : Communication services (+1.97%) and utilities (-1.80%) led gains and losses, respectively [0].

This summary provides objective market context and data for decision-making support, not investment advice.