The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Market Update: What the Fed’s Latest Rate Cut Really Signals

Last week, the Federal Reserve cut interest rates by 25 basis points at its December FOMC meeting — but the decision was notably not unanimous. In fact, three members dissented: one favored a larger cut, while two believed rates should not be cut at all. This marked the first time since 2019 that the Fed has seen three dissenting votes in a single meeting. 

Looking more broadly, the divide within the Fed is even clearer. Of the 19 total FOMC participants — including regional bank presidents and Fed governors — seven indicated they did not believe a rate cut was necessary. Only three of those seven were voting members, but these “silent dissents” highlight how challenging monetary policy has become in the current environment. 

Federal Reserve Chair Jerome Powell acknowledged this challenge during his press conference, noting that the Fed effectively has one primary tool and must choose which issue to prioritize. On one hand, the labor market has shown signs of deterioration. On the other, inflation remains elevated. These competing pressures explain why opinions within the Fed continue to vary on the appropriate path forward. 

Looking ahead, the next several months will be particularly important. Powell has just three meetings remaining as Fed Chair before his term ends in May, and markets are watching closely to see who President Trump may nominate as his successor. At the same time, there’s a growing disconnect between the Fed and market expectations. While markets are currently pricing in two rate cuts in 2026, the Fed’s own projections suggest one — or possibly none at all — may be appropriate. 

It’s also worth stepping back to look at how rate cuts have played out so far. Since September of last year, the Fed has cut rates by 175 basis points (1.75%). Yet, contrary to what many might expect, consumer borrowing costs haven’t meaningfully declined. Credit card rates, auto loans, and mortgage rates have remained stubbornly high — and in some cases, have even increased. The 10-year Treasury yield is slightly higher today than when rate cuts began, underscoring the ongoing influence of inflation and a still-resilient economy. 

While rate cuts have supported risk assets, particularly equities, other parts of the economy — most notably housing — continue to struggle. Even as President Trump has pointed to real estate weakness as a reason for deeper rate cuts, recent data suggests that monetary easing alone hasn’t significantly improved housing affordability or activity. 

This week brings an important wave of economic data that could further shape the Fed’s outlook. We’re set to receive two jobs reports (for October and November) and two inflation reports covering the same months. These delayed releases follow the recent government shutdown, and as data flow resumes, they’ll provide critical insight into the health of the labor market and inflation trends — the two areas most central to future Fed decisions. 

As always, if clients have questions about how these developments may affect their financial plans, advisors are encouraged to connect and provide perspective. We’ll continue monitoring the data closely and share updates as conditions evolve. 

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Video Summary: 

Adam Phillips:

The Federal Reserve met last week and delivered another 25 basis point rate cut at its December FOMC meeting. But this decision was not unanimous. There were actually three dissenting votes. There was one individual within the Fed who. Wanted the Fed to cut more, and there were two who actually thought that the Fed shouldn't cut at all.

This was actually the first time since 2019 that we've seen three descents at a Fed meeting. And actually, if we look at the broader group of FOMC participants, there are 19 individuals, only 12 of whom actually get a vote. But there are 19 individuals, and there are 12 regional banks.

Presidents and there are seven Fed governors. So of those 19, we actually saw that seven thought that the Fed shouldn't be cutting rates at all at their December meeting. So this is what we're, we, a lot of people are referring to as these silent dissents. Only three of those seven were actually voting members.

Um, but, but we see that others who were able to share their opinion in one way or another actually thought that they didn't need to cut rates at all in this most recent meeting. I think that speaks to this difficulty of navigating policy in the current environment. And actually, Jerome Powell and his press conference that followed the FOMC meeting said that the Fed only has one tool, and they have to decide which battle they're going to fight.

They can't manage. The jobs market is where we're seeing a deteriorating labor market and elevated inflation, with the same tool, so they have to choose one or the other. And so these dissents are really a reflection of some at the Fed who think that inflation is the bigger problem, and others who think that fighting this, the rising unemployment rate, is the greater issue.

So these are things that we're going to continue to watch here in the months to come. It's certainly going to be interesting. Looking ahead, because we know that Jerome Powell only has three meetings left as Fed chair before his term expires in May, and we're all waiting to see who President Trump will nominate as the next Fed chair.

If you look at market pricing, their pricing is in. They're pricing in two rate cuts in 2026, even though the Fed is actually suggesting that one rate cut might be more appropriate, and seven within the Fed actually think that no rate cuts are needed next year. So this is really going to be an interesting, time and, and challenging time for the Fed and those of us who watch and plan investment strategy based on the monetary policy outlook.

But I think it's really interesting to just take a step back and look at some of the data now that we've seen rates, rate cuts actually reach 175 basis points. That's 1.75% since the Fed started cutting rates back in September of last year. And what's interesting to me is that. Contrary to what many might expect.

We've actually seen that, that, that credit card rates, auto loan rates, mortgage rates, they haven't come down. In some cases, they've actually gone up that if you look at the 10-year treasury yield, it's actually a little bit higher than where it was when the feds started cutting rates in September of last year.

And so I think this is really important. It speaks to the fact that inflation is still an issue, and the economy. Is still in, in pretty good shape. We've seen,, the odds of a recession have really fallen, certainly since the highs that we saw back in April, post Liberation Day. So this is me. I think this speaks to the fact that in inflation, there's still some pressure out there, and that's why the Fed is having trouble, having formed a consensus here in this environment, and why opinions do vary.

So it's something that's very, very interesting. Obviously, we know that all these Fed cuts have supported risk assets, specifically the stock market. In recent months. And, um, so that is one beneficiary. But we know that other parts of the economy, such as housing, are continuing to see weakness.

And we know that President Trump has been referencing the weakness in the real estate market and broader housing markets in in arguments. For more cuts at the Fed. But, all evidence certainly, it's certainly the most recent data suggests that Fed cuts just really aren't making a huge difference there.

So, as we look to this week, it's going to be a really important week for economic data. We're getting. Two job reports. So the jobs report for October and for November, as well as two inflation reports. So, even though it's going to be partial reports, we're going to get the inflation report for the month of October, and for the month of November, later on this week, we're getting two at once because we know that the government was shut down.

And so we're starting to see a. thaw in this data now that things aren't frozen. We're starting to see a little bit of a drip of more information here as we get caught up and brought up to speed on what's been going on with the market. So this is really going to be an interesting time as we look for the latest information about how the economy is doing, specifically as it relates to the jobs market and inflation, since we know that that is so critical to what the Fed is trying to accomplish here.

So I'll leave it there for right now. If you have any questions, please don't hesitate to reach out to your advisor. I'll look forward to talking again soon.