Bond Market Update – November 2025

• The likelihood of a December rate cut has declined. A December rate cut is "far from certain", according to Fed
  Chair Powell. The implied probability of a December rate cut fell from nearly 100% to roughly 65% after Powell’s
  comments, and markets are adjusting to a slower and shallower pace of rate cuts in 2026.

• Inflation near 3% makes it hard for the Fed to cut rates and for bond yields to fall. A growing number of Fed
  officials are resisting rate cuts due to sticky inflation. While weakness in the labor market is a concern, inflation
  near 3% doesn't leave much room to cut.

• The Fed is ending quantitative tightening (QT) as its balance sheet shrinks. The balance sheet has declined by
  over $2.2 trillion from its peak and reserves are now less than 10% of GDP, a level the Fed views as consistent
  with "ample" but not "abundant". Proceeds from maturing mortgage-backed securities will be invested in
  Treasury bills.

• Unemployment rate unknown. In the absence of data from the Bureau of Labor Statistics, the Federal Reserve
  Bank of Chicago has constructed an unemployment rate estimate. It shows a move up to 4.4% compared to the
  BLS reading of 4.3% for August, but the level is still low by historical standards.