The market went into last week expecting autopilot from the Federal Reserve. Pricing in the options markets said as much: the volatility premium was tiny, the breakevens implied little movement, and traders had largely convinced themselves that the Fed had abandoned any pretense of an inflation target. Data had become irrelevant; the narrative was fixed. The central bank would keep cutting, keep soothing, and keep pretending that liquidity was infinite and stress was transient.
Then Jerome Powell decided to throw a wrench in that assumption.
It wasn’t a spontaneous act. Powell was literally reading from a prepared script during the press conference—an attempt to inject “optionality” back into the conversation. After weeks of markets pricing a near-certain December rate cut, Powell wanted to suggest that the decision wasn’t preordained. That the Fed might, theoretically, still have a choice.
The problem wasn’t what he said. It was whether anyone believed him.
Powell’s “Optionality” Moment
Let’s start with the numbers. Ahead of the meeting, the probability of a December rate cut had climbed above 80%. By the time Powell finished talking, that probability had dipped to roughly 72%. Not nothing, but not enough to change the broader market view. Traders still assumed
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