The 4Sight Weekly Report

Macro + private credit lens heading into the Fed’s December meeting. Focus: how a likely rate cut, missing data, and rising household stress intersect with risk-taking in private markets.

Theme of the Week — “Cut Week, Uneasy Confidence”

The Fed is widely expected to cut rates again this week, but the backdrop isn’t clean. October’s official inflation and jobs reports were cancelled by the shutdown, November’s CPI and payrolls have been pushed into mid-December, and the New York Fed just reported the sharpest rise in household financial worries since 2020. Markets are leaning into a dovish outcome with risk assets and duration, while pockets of the real economy and private credit are flashing a more cautious signal.

Macro Brief

Fed meeting (Dec 9–10): The FOMC meets this week with the policy rate at 3.75–4.00%. Futures and street forecasts put the odds of a 25 bp cut in the high-80% range, which would be the third consecutive trim in 2025. Internal disagreement is expected to be the sharpest since 2019, given still-elevated inflation and patchy data.
Data fog from shutdown: Because of the 43-day government shutdown that ended in mid-November, the BLS cancelled the October CPI and October employment report entirely. Instead, it will fold partial October price data into the November CPI release on December 18, and publish October+November payrolls together on December 16. Until then, policymakers are leaning more heavily on private-sector indicators.
Latest inflation we do have: The last full CPI print (for September) showed headline and core inflation both running at 3.0% year-over-year, with a 0.3% monthly gain. Inflation has cooled from 2022–23 peaks but is still above the Fed’s 2% target, and Cleveland Fed nowcasts point to month-over-month inflation in the 0.2–0.3% range for October–December.
Labor signal (ADP): ADP’s November report showed private payrolls declining by about 32,000 jobs, driven by small-business job losses, even as larger employers continued modest hiring. The official BLS report for November won’t arrive until December 16, leaving the Fed to make this week’s decision without hard government labor data.
Rates: The 10-year U.S. Treasury yield has backed up to roughly 4.15–4.20% into the meeting after dipping earlier in the fall. Long-end yields are reacting to both the expected cut and concerns that easier policy could keep inflation sticky if growth doesn’t weaken further.
Household balance sheets: The New York Fed’s November Survey of Consumer Expectations shows one-year inflation expectations steady at 3.2% and three- and five-year expectations anchored around 3.0%, but perceived financial well-being deteriorated. Worries about current and future finances rose, and expected medical-cost inflation jumped above 10%, the highest since 2014, even as perceived job-loss risk actually fell.

Private Credit Update

Structural risk is the story, not just spreads: Moody’s and other ratings voices continue to emphasize that the main risk in private credit is coming from structural innovation — complex borrower structures, more frequent use of payment-in-kind (PIK) toggles, and documentation that shifts risk to lenders — rather than from simple headline spread levels.
“Bad PIKs” and refinancing tests: New data show the share of middle-market private-credit deals including PIK features has risen from the high single digits a few years ago to double-digits today. That may keep companies afloat in the short term, but it back-loads risk into future refinancing cycles and raises the stakes for 2026–27 maturities.
Transmission risk broadens: Recent research from large rating agencies points out that private credit is no longer just a niche for a few direct lenders — life insurers, pensions, and other institutional allocators now hold meaningful exposures. Under a broad risk-off or default cycle, that wider investor base could propagate shocks into public markets and funding channels more quickly than in past cycles.
Counterpoint: most of the market is still plain-vanilla: Some research pushes back on “doom” narratives by noting that the bulk of private credit assets globally are investment-grade or quasi-IG, with bank-like underwriting and diversified investor bases. The real concern is the marginal deal: late-cycle, structure-light transactions in cyclical sectors, where documentation has eroded most.

What It Means Right Now

Rate cuts are not a free pass: A widely anticipated Fed cut this week may ease front-end funding costs, but it does not remove the structural issues: missing official data, softening small-business hiring, and rising household financial stress. Credit investors should not treat a cut as an “all clear” signal.
Documentation is your shock absorber: With PIK features and complex structures creeping higher, deals with strong covenants, frequent KPI reporting, and simpler capital stacks are increasingly worth a few basis points of foregone yield.
Focus on resilience, not just rate sensitivity: As mortgage rates hover in the mid-6s and consumer worries climb, business models tied to discretionary spend and over-levered households carry more downside risk than steady, contracted-revenue or essential-service borrowers.
Plan for data-driven repricing: The December 16 jobs report and December 18 CPI — both delayed by the shutdown — can change the narrative quickly. Portfolios should be positioned so that a surprise on either side (weaker labor or hotter inflation) doesn’t break the thesis.

3–6 Month Scenario Snapshot

Scenario	Key Triggers	Credit Market Outcome	Positioning Cue
Orderly Cut Cycle	Fed delivers 25 bp this week, data show moderating inflation and softer but not collapsing labor.	Spreads broadly stable; high-quality private credit continues to clear with modest structure improvement.	Maintain senior, floating-rate core; selectively extend tenor with top-tier sponsors and strong docs.
Data-Shock Volatility	December jobs or CPI surprise sharply (hotter inflation or weaker labor than expected).	Rates and spreads whipsaw; weaker secondary credits underperform; funding windows swing open and shut.	Keep dry powder; prioritize deals with flexible call structures and strong information rights.
Credit-Curve Crack	PIK-heavy or structure-light deals experience idiosyncratic stress; downgrades cluster in specific sectors.	Investors differentiate sharply between “transparency credits” and “story credits.”	Rotate away from opaque structures, even at higher stated yield; lean into documentation premium and sponsor quality.

Risk Watch

Fed communication error: A cut paired with overly dovish language could re-ignite inflation worries and push long yields higher; a surprise hold could trigger a sharp, short-term risk-off.
Household squeeze: Stable but elevated inflation expectations, rising concerns about medical and living costs, and mid-6% mortgage rates point to a thinner cushion for consumer-exposed credits.
Hidden leverage in private credit: Complexity, PIK, and weaker covenants may magnify loss severity when a true stress cycle arrives, especially for small-cap, cyclical borrowers.

Opportunity Watch

“Boring” senior risk with great transparency: First-lien, floating-rate loans to essential or contracted-revenue businesses — with real covenants and monthly reporting — still offer attractive carry relative to public IG.
Documentation and data rights premium: Deals that offer lender-friendly information rights, conservative leverage, and clear enforcement language are increasingly differentiated in allocation committees.
Selective duration: If the Fed confirms a gradual easing path and data don’t re-accelerate, measured moves into slightly longer-tenor, high-quality assets can add convexity without leaning on aggressive macro calls.

Quote of the Week

“A rate cut can lower the price of money — it doesn’t replace discipline in how you lend it.”

References (APA style)

Federal Reserve. (2025). FOMC calendars and information. https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
Investopedia. (2025, December 8). Next Fed meeting: When it is in December and what to expect. https://www.investopedia.com/next-fed-meeting-when-it-is-in-december-and-what-to-expect-11864286
Reuters. (2025, December 8). Global markets cautiously hopeful Fed will deliver rate cut. https://www.reuters.com
U.S. Bureau of Labor Statistics. (2025, October 24). Consumer Price Index — September 2025. https://www.bls.gov/news.release/cpi.nr0.htm
U.S. Bureau of Labor Statistics. (2025, November 20). Revised news release dates following the 2025 lapse in appropriations. https://www.bls.gov/bls/2025-lapse-revised-release-dates.htm
Reuters. (2025, November 21). US cancels release of CPI report for October because of government shutdown. https://www.reuters.com
Federal Reserve Bank of Cleveland. (2025). Inflation nowcasting. https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting
Reuters / The Guardian. (2025, December 3). US private payrolls unexpectedly declined in November, ADP says. https://www.theguardian.com
Federal Reserve Bank of New York. (2025, December 8). Survey of Consumer Expectations — November 2025. https://www.newyorkfed.org/microeconomics/sce
Federal Reserve Bank of St. Louis. (2025). Market yield on U.S. Treasury securities at 10-year constant maturity (DGS10). https://fred.stlouisfed.org/series/DGS10
Alternative Credit Investor. (2025, November 17). Moody’s: Rising complexity in private credit could amplify risks. https://alternativecreditinvestor.com
Fortune. (2025, November 21). Private credit deals see a rise in “bad PIKs” showing “cracks” in the market. https://fortune.com
Bloomberg Opinion. (2025, December 3). Private-credit fears are based on four myths. https://www.bloomberg.com
Fitch Ratings. (2025, December 2). Private credit transmission risks, investor base expand in Europe. https://www.fitchratings.com