Fed meeting minutes preview: How to unravel the interest rate puzzle in the data black hole?

The Fed will release the minutes of the October monetary policy meeting on November 20, at which point market expectations for a rate cut in December have plummeted from 88% to 44%. This reversal in expectations stems from Chairman Powell's hawkish statement that “a year-end rate cut is not a foregone conclusion,” as well as additional remarks from Boston Fed President Collins about the “high bar for easing policy in the near term.”

Analysis suggests that the 43-day U.S. government shutdown has resulted in a lack of key employment and inflation data, putting the Fed in a “data blackout” situation ahead of the December meeting. Although the shutdown ended on November 13, the Bureau of Labor Statistics will need 2-3 weeks to restore the data release process, which means that Fed policymakers may rely on real-time indicators and unconventional data sources for their assessments. Gold prices reacted to this, with spot gold falling 0.4% to $4062.96 per ounce on Monday.

Analysis of the Uncertainty of Monetary Policy Path

The Fed lowered the benchmark interest rate to the range of 3.75% - 4% in October, which was supposed to be a continuation of the easing cycle, but the signals released after the meeting left the market confused. The dot plot shows that the median interest rate expectation for the end of 2025 is 3.1%, suggesting there is still 100 basis points of room for rate cuts, but the short-term guidance emphasizes a cautious stance of “relying on data.”

This contradiction arises from conflicting economic signals: on one hand, the manufacturing PMI has been below the expansion-contraction line for five consecutive months, and the consumer confidence index has fallen to a new low since 2023; on the other hand, the core PCE year-on-year still reaches 3.2%, exceeding the 2% policy target, and wage growth remains at a high level of 4.5%. Morgan Stanley's interest rate strategists suggest that the Fed may adopt a new “step-down” rate cut model—acting quickly when data is clear and extending the wait-and-see period when uncertainty is high. This model would make the interest rate path more volatile, and the 10-year U.S. Treasury yield has priced this in, with the volatility index rising to a new high since April 2024.

Assessment of the Interference of Data Gaps on the Decision-Making Process

The statistical vacuum caused by the U.S. government shutdown is distorting market perceptions. At least 8 key indicators have been interrupted, including the September non-farm payroll report, October CPI data, and the preliminary GDP for the third quarter. The Atlanta Fed's GDPNow model has suspended updates due to insufficient input data, and this model is an important tool for the market to track real-time economic dynamics.

To compensate for the lack of official data, institutional investors are turning to alternative data sources: the number of job postings on Indeed shows a 12% decline in job demand, and the daily tax revenue recorded by USTreasuryAPI has decreased by 5% year-on-year. These high-frequency indicators all suggest an economic slowdown. However, the Fed's decision-making body has clearly stated that it will not rely on unofficial data, and the “Nowcast Plus” system developed by New York Fed staff still predicts using historical departmental data interpolation. This methodological divergence may lead to rare disagreements in the December meeting, with 3-4 committee members expected to vote against the interest rate decision.

Market Liquidity Background and Policy Tool Innovation

It is worth noting that John Williams, the president of the New York Fed, recently held a secret meeting with representatives from 25 primary dealers to discuss optimizing the use of the standing repo facility. This facility serves as a backup mechanism for market liquidity, allowing eligible institutions to obtain cash by using Treasury securities as collateral. However, since its launch in 2023, its usage rate has been below 5%. Meeting minutes indicate that dealers have suggested reducing the facility's interest rate by 10 basis points and expanding the range of eligible collateral to include investment-grade corporate bonds.

These discussions took place against the backdrop of sporadic spikes in repurchase market rates, with the overnight repurchase rate briefly surpassing 6% at the end of October. The Fed may enhance the attractiveness of this tool through technical adjustments, but this should not be viewed as a new round of quantitative easing. Instead, Robert Perli, manager of the System Open Market Account, emphasized that the optimization of the tool is aimed at “improving the precision of interest rate control” rather than providing additional easing.

Fed policy adjustment key parameters

• Current interest rate range: 3.75 % - 4 %
• Probability of rate cut in December: 44% (decreased by 44 percentage points during the month)
• Missing Data Quantity: 8 key indicators
• Usage Rate of Standing Repo Facility: Below 5%
• Spot gold price: 4062.96 USD/oz

Cross-Market Linkage and Asset Allocation Strategies

Different asset classes have shown divergent reactions to interest rate uncertainty. Gold, as a traditional safe-haven asset, is under pressure in the context of a strengthening dollar, with SPDR Gold Trust holdings decreasing by 4.93 tons to 1,044 tons. However, Bitcoin has demonstrated unique resilience, with its 30-day correlation to the Nasdaq index dropping to 0.35, suggesting that crypto assets are developing an independent market logic.

In the foreign exchange market, the US dollar index holds at the support level of 105, but the options market indicates that volatility will rise by 20% over the next month. For allocation-type investors, it is recommended to adopt a “barbell strategy”—allocating 70% of assets to defensive varieties such as cash and US Treasuries, and 30% to deep value assets like emerging market local debt and silver. Historical backtesting shows that during periods of policy ambiguity, this strategy can achieve a Sharpe ratio of 1.8, far exceeding the 1.2 of balanced allocation.

Observation of Global Central Bank Policy Coordination and Divergence

The Fed's hesitation is triggering a divergence in global monetary policy. The European Central Bank has clearly indicated that it will continue to cut interest rates by 25 basis points in December, and the Bank of England may also follow suit encouraged by the drop in inflation, which has widened the 10-year yield spread between the US and Germany to 180 basis points. Emerging markets face a dilemma: following suit with rate cuts could lead to capital outflows, while maintaining interest rates could weigh down the economy.

The Brazilian central bank has unexpectedly paused its easing cycle, while the Indian central bank has intensified foreign exchange interventions. This divergent environment is beneficial for cross-border carry trades, but it also increases the vulnerability of global financial markets. The Bank for International Settlements warned in its latest quarterly report that the major central bank policy divergence index has risen to a new high since the “taper tantrum” in 2013, and the volatility of cross-border capital flows could increase by 30%.

When the fog of economic data shrouds policymakers, the market's greatest fear is not the hawks or doves, but the lack of a predictable decision-making framework. This interest rate puzzle triggered by a statistical vacuum ultimately tests not only the Fed's ability to respond to uncertainty but also the limits of modern central bank communication mechanisms. Those investors who can maintain navigational capabilities in this chaos may seize the initiative in the new cycle's reshaping.