The Deflation Trap: How Markets Learned to Stop Worrying and Love the Data Drought

There's a strange symmetry to watching central banks intentionally blind themselves. The Federal Reserve's decision to skip October's CPI release—and push November's data to December 18th, after the December 10th policy meeting—is the kind of move that historians will circle when they're explaining how 2025 became the inflection point nobody saw coming.

Let me explain why this matters more than it first appears.

The Silence Before the Signal

Imagine you're a pilot, and someone hands you the instruments but tells you the instruments won't work until you've already landed. That's where the Fed sits now. Powell steps up to the podium on December 10th, and he's supposed to make a trillion-dollar decision with September labor data, delayed October inflation readings, and retail sales numbers that "disappointed"—the euphemism du jour for "things aren't humming like we thought."

The market has already decided what happens: A December rate cut is now priced at roughly 80% probability by traders, up from a coin flip just days ago. This isn't analysis. It's consensus. And consensus, especially when built on incomplete information, tends to be the most fragile thing in finance.

Here's the thing about data silence: it becomes a screen onto which everyone projects their own forecast. The hawks see it as room to justify staying put. The doves see it as cover for cutting. Meanwhile, the labor market sent actual mixed signals. Initial jobless claims came in at 216,000, lower than the expected 225,000—a number that should, in theory, reduce urgency around rate cuts. But nobody's reading it that way.

They're reading it the way the market wants to read it: as permission to move forward with the bet that was already placed.

What Happens When Retail Sales Disappoint

There's a peculiar category of data called "retail sales," which sits somewhere between "consumer confidence" and "actual economy." Last week, retail sales disappointed while producer prices tracked near consensus—which is a way of saying that people aren't spending like the models predicted they would, while the stuff they do buy remains expensive.

This is the texture of real economic slowdown. Not crisis. Not recession. Just... gravity. The holiday shopping season that's supposed to prop up Q4 is being greeted with 81% of consumers expecting higher prices due to tariffs and 63% considering spending less, buying cheaper, or skipping gifts altogether.

When discretionary spending contracts at the margin—when Costco customers start picking up store-brand items—that's when the model breaks. And the model is all the Fed has to go on, because the Fed won't have the October inflation data until it's essentially irrelevant.

The Tech Bounce Isn't Really About Tech

The three major U.S. indexes rose for the fourth day in a row on Wednesday, with the S&P 500 up 0.69% to 6,812.61 and the Nasdaq climbing 0.82% to 23,214.69. Alphabet bounced another 1% in premarket, heading for an 8% week. The narrative is that rate cuts are coming, so equities rally. Growth gets cheaper to finance. Tech suddenly looks reasonable at 25x forward earnings.

But there's something darker running underneath. Nvidia is down 15% for the month and tracking its worst monthly decline since 2022—and this happened while the broader market rallied. The Information reported that Meta is eyeing Google chips for 2027, which sounds like supply diversification and reads like a crack in Nvidia's fortress.

When your bellwether starts failing while the index climbs, you're not watching conviction. You're watching rotation. And rotation on thin holiday volume often ends in vertigo.

Bitcoin in the Graveyard of Certainty

Here's where the digital assets reveal what equities are still pretending not to see. Bitcoin has been rangebound in the low $85K to $91K zone for weeks. XRP is up 7%, while SUI is up 11%, PEPE up 8%, and ETH up 11%—but these are altcoin sucker rallies, the kind of momentum that appears right before everything gets flushed.

Ethereum, in particular, remains technically fragile. ETH has been consolidating between $3,700 and $4,200 in November, repeatedly testing resistance it can't quite break. The token recovered above $3,000 on Trump-friendly sentiment and rate-cut hopes, but there's no structural reason for crypto to rally into a period of data scarcity and policy uncertainty.

Usually, markets rally on information. Crypto's currently rallying on the absence of it.

The Calendar Trap

Let's be clear about the mechanics. The market is now riding this narrative until December 9th, when Powell speaks. If he hints that cuts continue, we get a melt-up into year-end. If he hedges, or—God forbid—suggests the Fed needs to see inflation data before deciding, you'll see the kind of reversal that makes Black Friday look like a warm-up.

November ends with the market essentially saying: "We trust Powell more than we trust inflation data." That's a bet. Not a view. A bet that's one Fed pivot away from unwinding.

The S&P 500 is up 12.3% for the year, the Nasdaq 15.3%. Both have crushed their historical 10% average return. But November has been a difficult month for stocks, with all three major averages tracking for losses despite this week's recovery.

We've found a rally on a data void. We've convinced ourselves it's justified. And we've got ten trading days until we know whether that conviction was wisdom or window dressing.

For a market built on the principle that information leads to price discovery, we're operating on surprisingly little of both.