Market expectations for a December rate cut rose sharply after two Federal Reserve officials signaled that monetary policy may now be sufficiently restrictive. Their comments arrived at a moment of heightened sensitivity, with global markets—Israel included—reacting to each new inflation reading and policy hint. The remarks fueled a broad repricing across Treasuries and global sovereign bonds, as investors inferred growing confidence inside the Fed that inflation is sustainable on its downward path.

Jefferson Signals Confidence in Disinflation Trajectory

Vice Chair Philip Jefferson’s comments were the clearest indication that the Fed may be nearing a pivot. He emphasized that inflation has continued to cool without significant deterioration in labor-market conditions, suggesting the central bank may no longer need to maintain restrictive policy at current intensity.
Jefferson noted that policy transmission is still unfolding, with credit tightening, slower corporate lending, and softer household consumption appearing more visibly in recent data. For investors, his tone implied that the risk of overtightening is rising—a shift from earlier months when persistent price pressures dominated the Fed’s messaging.
His remarks helped solidify the view that the central bank is increasingly comfortable with the progress on core inflation components, including shelter, which remains one of the slowest-adjusting metrics but has shown early signs of moderation.

Cook Highlights Downside Risks to Growth

Governor Lisa Cook offered a complementary perspective, underscoring that the balance of economic risks may now be tilting toward weaker activity rather than overheating. She pointed to tightening credit conditions, slowing business investment, and cooling labor-market momentum as evidence that further restraint might carry unnecessary risks.
Cook’s attempt to highlight asymmetry in policy outcomes—where keeping rates too high for too long could generate avoidable economic weakness—was interpreted by markets as a second strong signal. This alignment between Jefferson and Cook strengthened the belief that the Fed is preparing markets for policy easing sooner rather than later.
Her remarks also resonated in global bond markets, including Israel’s sovereign curve, where yields tracked U.S. Treasuries lower amid renewed optimism that global monetary conditions could ease in early 2025.

Bond Markets React as Investors Reprice the Path Ahead

The market reaction was swift. Fed funds futures moved to price in a noticeably higher probability of a December rate cut, while Treasury yields drifted lower across maturities. The two-year yield—most sensitive to Fed policy expectations—fell meaningfully, reflecting growing conviction that the tightening cycle has peaked.
Equity markets also responded, particularly interest-rate-sensitive sectors such as real estate, financials, and growth technology. In Israel, rate-sensitive assets similarly saw improved sentiment, as investors weighed the potential spillover effects of a Fed shift on local monetary policy.
Still, uncertainty remains. Inflation has slowed but is not yet at target, and recent energy-price volatility serves as a reminder that the path toward stable 2% inflation is not guaranteed. Investors recognize that any setback in core inflation or labor-market stability could delay easing, even if the Fed is preparing the groundwork.

Looking ahead, upcoming U.S. CPI reports, labor-market data, and minutes from the next FOMC meeting will be crucial for confirming whether the Fed is truly ready to cut rates in December. Markets will watch closely for further alignment among policymakers, evidence that disinflation remains intact, and reassurance that growth concerns are rising on the Fed’s priority list. If these signals continue to build, a December cut may transition from a possibility to a policy expectation—shaping global monetary conditions well into 2025.