Market Calm Settles In as Wall Street Awaits Fed Decision

Wall Street’s more anxious voices have largely faded again, giving way to an unexpected sense of calm across financial markets. Just a short time ago, sentiment felt far more fragile. Speculative pockets of the market swung sharply crypto sold off hard, AI leaders spiked and then retreated, and volatility flickered across both stocks and credit. But the anxiety proved short-lived. The market quickly regained its footing, and the dominant theme of 2025 has returned: a steady, low-volatility environment that continues to support conviction-driven trades as the US economy keeps pushing ahead.

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The VIX, long viewed as the market’s favorite fear indicator, is sitting close to its lowest readings of the year. The MOVE Index, which tracks expected swings in Treasuries, just slipped to levels last seen in early 2021. Many investors have even moved to unwind tail-risk hedges. Bitcoin, after falling 30%, has stopped sliding and is holding its ground. The burst of speculative pressure, dramatic as it was, ultimately passed. Doubters, once outspoken, have largely gone quiet.

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One big reason: the economic backdrop isn’t catching anyone off guard at least not yet. Friday’s inflation print landed exactly where economists expected. Traders still see the Fed delivering a rate cut next week and additional easing in 2026, even though policymakers themselves are showing early cracks in unity about what comes next.

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Mandy Xu is among those warning that today’s calm may not last. “A divided Fed, or even a hawkish cut, could be a catalyst for more volatility going into year-end,” said Xu, head of derivatives market intelligence at Cboe. “It’s no coincidence that the sharpest volatility spike since April unfolded after the last Fed meeting, when Powell came out more hawkish than expected.”

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Fresh economic data could add more tension to the debate. On Friday, an older reading of the Fed’s preferred inflation gauge rose 0.2%, keeping the annual rate just under 3%. That suggests inflation is stable but still stubborn.

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Concerns around employment are also building. According to ADP Research, US businesses cut payrolls in November at the fastest pace since early 2023, adding to a steady stream of layoff announcements.

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Economists surveyed by Bloomberg expect next week’s Fed decision to show a rare split vote. St. Louis Fed President Alberto Musalem may join Kansas City Fed President Jeff Schmid in dissent. Meanwhile, Fed Governor Stephen Miran is poised to argue that a quarter-point cut doesn’t go far enough highlighting just how divided the committee has become over the policy path ahead.

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Priya Misra, portfolio manager at JPMorgan Investment Management, notes that today’s unusually low volatility reflects faith in both the Fed’s willingness to step in if needed and the economy’s underlying strength. But she warns that such confidence can evaporate quickly. “A clear pickup in firing could change this payrolls might start signaling deeper recession risks, which markets haven’t priced in,” she said. She sees another risk: “a hawkish and fractured Fed that sounds uneasy about inflation.”

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Even with those risks on the horizon, major indexes extended their climb. The S&P 500 rose 0.3% for the week, inching toward record territory, while the Nasdaq 100 gained 1%. Bitcoin logged its strongest session in months on Tuesday after nearly a third of its value evaporated since October. A broad measure created by Bank of America to track risk sentiment across multiple asset classes has fallen into negative territory, sitting near levels last seen before the Fed began its tightening cycle.

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Investors, for now, are embracing the calm. US equity funds have notched twelve consecutive weeks of inflows. That optimism persists even as the White House prepares new tariff tools in case the Supreme Court alters the framework for trade policy.

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Still, a few signs of caution linger beneath the surface. According to BofA research based on EPFR data, investors poured the third-largest weekly total of the year into money-market funds.

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Tail-risk hedging products, including the Cambria Tail Risk ETF, remain slightly positive in 2025 but have been unable to hold onto earlier gains despite volatility flare-ups in November and April. A separate indicator measuring demand for tail-risk insurance has tumbled back near its lowest levels of the year after a brief jump.

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Bitcoin-related turmoil seems to be easing, the Fed is highly likely to cut by 25 basis points, and recent data points to economic stability,” said Mike Zigmont, co-head of trading and research at Visdom Investment Group. “Buying puts is expensive no matter what. It’s even harder psychologically when everything seems calm.”

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