A recent report from Wall Street investment banks shows that the possibility of the Fed cutting interest rates in December is rising sharply. Market pricing has reflected a rate cut expectation of 21 basis points, with an implied probability of over 85%. As the policy blackout period begins, the economic data vacuum makes this expectation almost a certainty.

Several significant signals are emerging: New York Fed President Williams has recently expressed a clear tendency towards easing, and the number of supporting votes within the FOMC has reached a critical point. Even more concerning is the structural weakness in the labor market—unemployment rates continue to rise, and layoff indicators are all showing red lights. Particularly, the unemployment rate among college graduates has reached 8.5%, while this group contributes to 60% of labor income in the U.S., highlighting the severity of the issue.

Looking ahead to next year, the market faces a tug-of-war between two opposing forces. Large-scale fiscal measures will inject liquidity into the economy and accelerate the turnover of funds. However, the employment data at the beginning of the year is likely to continue weakening, forcing the Fed to reassess its policy path in January. With inflation gently retreating and the potential for a dovish successor, the room for selling short-term interest rates is relatively limited.

From a trading perspective, Wall Street strategists recommend establishing short positions in 10-year U.S. Treasuries in the first quarter, betting on growth recovery expectations for 2026. However, it is important to note that fluctuations in early-year data may cause short-term disruptions, and position management needs to allow for buffer space.

The interest rate cut cycle usually benefits risk assets, but there is a lag between the persistent weakness in the labor market and the actual effects of fiscal stimulus. This mismatch may create a volatility window in the first half of next year, and it is important to closely monitor three main lines: employment, inflation, and fiscal execution progress.