The Rate Cut Mirage: Why the Fed's Comfort is Our Landmine

October 9, 2025

We're three weeks from a Federal Reserve decision that markets have already priced in as inevitable. A 94.6% probability, according to the CME FedWatch tool, that Powell and company will cut rates by 25 basis points on October 29th. The S&P 500 is at 6,753, the Nasdaq has notched fresh highs on the back of an AMD-OpenAI chip deal that nobody asked for, and somewhere in a Manhattan office, a young portfolio manager is probably high-fiving their team about how the "soft landing" thesis is holding.

I want to tell you how obviously good this setup looks. I really do. But I can't, because it isn't.

Here's what's happening beneath the surface: We're running on a government shutdown that just passed two weeks. Employment data is murkier than it was a month ago. Inflation hasn't declared surrender. And the Fed—an institution that has already cut rates once this cycle—is being asked to do it again on October 29th because market participants have simply decided that's the way this ends.

This is what dip-buying madness looks like when it's normalized.

The data matters here. Yes, the Fed's September minutes show officials eyeing two more cuts by year's end. Yes, growth stocks are suddenly attractive again. Yes, Bitcoin bounced from that April rout and CF Benchmarks is forecasting a 20-percent rally to $148,500 by December. But none of this changes the fact that we are living inside an assumption—not an outcome.

Markets have constructed an elaborate narrative: inflation is slowing, the labor market is softening gracefully, and the Fed, recognizing this, will execute a masterful series of rate cuts that will simultaneously rescue both equity valuations and crypto without triggering either a destabilization or a fresh bout of demand-side inflation. It's a three-pointer from half court, and everyone is standing and cheering before it goes in.

What happens on October 29th if Powell steps to the microphone and signals caution? What if the Fed's own internal debate—which the minutes suggest isn't as uniform as the market is pricing—tips toward patience? What if wage data comes in hot, or jobless claims drop, or inflation ticks back up?

The vulnerability isn't theoretical. It's embedded in the complacency. All three major indexes snapped losing streaks weeks ago. The S&P 500 has climbed 3.11% in just a month. The Russell 2000, sensitive to rate expectations, has been a rocket ship. Tech—always the clearest tell of rate-cut fever—is the star of the show. We have crypto ETFs doubling in count and stablecoins hitting half a trillion in projected circulation. Everything is pricing in a world where the Fed becomes the ultimate enabler, where the path forward is smooth, and where risk has been sufficiently vanquished.

That's not how history works. That's not how central banks work either.

The market's real mistake isn't believing in rate cuts. It's believing they're already locked in. It's the confusion between what the Fed might do and what the Fed will do when faced with data that contradicts the consensus. The moments that hurt the most aren't surprises—they're the realization that you were betting against your own doubt the whole time.

Here's what I'd be watching: The unemployment report, the PCE data, and any hints from Fed speakers between now and the 29th. The shutdown resolution. Whether wage growth stays elevated. And most critically, whether the market's 94.6% conviction starts to crack under the weight of its own assumptions.

Because conviction at that level isn't prudence. It's a bet that the Fed will choose comfort over caution, that the data will cooperate, and that there are no surprises waiting in the wings.

In this environment, those are very expensive bets.