Gold surged on a less hawkish Fed cut & hard landing concern

 

·       Stocks stumbled after unemployment surged to 4.6%; the US may be heading for stagflation, despite AI hypes; Fed & US data credibility may be at stake

·       Trump may eventually appoint Waller rather than known loyalist Hassett or Warsh; otherwise, Fed independence and also USD credibility will be questionable

·       Powell & Co. changed their narrative in a matter of just a few weeks from inflation hawk to employment hawk

On Wednesday, December 10, 2025, the focus of the market was on the FOMC meeting, the Fed’s policy decisions, and Chair Powell’s pressers. As highly expected, the Fed cuts all of its key policy rates by another 25 bps (following the September & October cuts). Fed cuts target range for the Federal Fund's Rate (FFR-interbank rate-SOFR) to 3.6% (median of 3.75-3.50%); primary credit rate (repo rate) 3.75%; IOER (reverse repo rate) 3.65%; overnight repurchase (ONRP) agreement rate (ON RP) 3.75% and ONRRP (Overnight Reverse Repurchase Agreement Rate) to 3.50%. The Fed also closed the QT as expected/already communicated earlier and started the mini back door QE-5 (RMPs)-Reserve Management purchases  @$40B/M (open-ended) to ensure adequate ample reserve in the balance sheet (B/S).

Fed cuts 25 bps as unanimously expected.

·       FOMC cut target range for the fed funds rate by 25 bps to 3.50-3.75%

·       There were two hawkish dissents & one dovish dissent, also largely in line with expectations

·       As expected, the forward guidance in the statement was amended to insert the phrase "the extent & timing" to the description of potential additional cuts

·       The interest rate forecast "dots" were little changed relative to September

·       The median continues to look for one 25 bps cut next year & one more in '27, which is the same projection as in September

·       The combined message from both the post-meeting statement & Powell’s press conference was that with policy rates close to neutral, the time for risk management cuts is past & that  further cuts would only come with a material deterioration in the labor market

·       Powell continued to sound relaxed on inflation. He mentioned "neutral" quite a few times & each time in the context of policy being in a plausible range of estimates of neutral.

·       Only notable changes to eco forecasts were a half point marking up of GDP growth next year (2026) due to lower & a more modest one-tenth downward revision to the inflation projection for ’26

·       In Powell’s prepared remarks, he said that today’s move "should help stabilize the labor market while allowing inflation to resume its downward trend toward 2% once the effects of tariffs have passed through" - implying they have done enough for now

·       Powell raised a few eyebrows in noting that job growth continues to be overstated by around 60,000 per month, implying that recent job growth has perhaps been negative

·       FOMC voted 9-3 to cut the policy rate by 25 bps to 3.75%-3.50%

·       Dot plot shows one 25 bps cut in 2026 and one 25 bps cut in 2027, unchanged from September.

·       Median projections: inflation 2.4% in 2026 (vs 2.6% prior) and GDP 2.3% (vs 1.8% prior).

·       Fed to begin short-term Treasury purchases on Dec. 12 to maintain ample reserves.

·       Dissents: Stephen Miran favored a 50 bps cut (as expected); Jeff Schmid (expected) and Austan Goolsbee (unexpected) preferred no change.

·       Statement now considers “extent and timing” of future rate adjustments.

·       Labor market view unchanged: job gains slowed, employment risks have risen.

·       Economic activity is still expanding at a moderate pace; inflation has elevated.

Summary of Fed Chair Powell’s comments (Presser-Q&A):

·       Don't expect more rate cuts any time soon.

·       Job creation may be *negative* right now.

·       Fed is more optimistic about 2026

·       Lots of dissent at the Fed; Median expectation is for only 1 rate cut in 2026

·       Powell focused on handing off a strong economy to his successor in May.

·       The Powell Fed will ensure "ample reserves" in the financial system

Federal Reserve Monetary Policy in December 2025

The FOMC meeting on December 9-10, 2025, resulted in a 25 basis point rate cut, lowering the federal funds rate target range to 3.50%-3.75%. This marked the third consecutive 25 bps cut in 2025 (following cuts in September and October/November), bringing the total easing in 2025 since Sep’25 to 75 bps (under Trump 2.0) after 100 bps rate cuts in 2024 (Since Sep’24 under Biden admin). The latest Fed rate decision was approved in a 9-3 vote, reflecting significant divisions within the FOMC—the most dissents in recent years:

·       One member (Miran) preferred a larger 50 bps cut (as expected)

·       Two members (Schmid-expected and Goolsbee-unexpected preferred no cut (hold rates steady)

Overall, at first look, it was a "hawkish insurance cut," as it pushed back against expectations for aggressive easing going forward while acknowledging a cooling labor market amid inflation remaining above the 2% target.

·       Inflation: PCE inflation was elevated (around 2.8-2.9% year-over-year heading into the meeting), with goods prices contributing to stickiness. Core PCE was similarly above target.

·       Labor Market: Job gains slowed, unemployment edged up slightly, but no sharp deterioration.

·       Growth: Affected by a recent government shutdown, delaying data, but overall resilience was noted.

Fed Chair Jerome Powell emphasized a data-dependent approach, stating there's "no risk-free path" and the Fed is well-positioned near neutral rates to assess incoming data.

Summary of the December 10, 2025, FOMC Statement

The Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate by 25 basis points to 3.50%–3.75%. This was the third consecutive 25 bp cut.

·       Economic activity continues to expand at a moderate pace.

·       Job gains have slowed this year, and the unemployment rate has edged higher (through September data); more recent indicators align with ongoing cooling.

·       Inflation has risen since earlier in the year (due to factors like tariffs) and remains elevated above the 2% goal.

·       Downside risks to employment have increased, while overall uncertainty remains elevated.

·       The Committee is attentive to risks on both sides of its dual mandate (maximum employment and 2% inflation).

·       Future policy adjustments will depend on incoming data, the evolving outlook, and the balance of risks.

·       Separately, reserve balances are judged to be at ample levels; the Fed will initiate purchases of shorter-term Treasury securities to maintain ample reserves over time.

Voting (9-3 decision):

- In favor: Jerome H. Powell (Chair), John C. Williams (Vice Chair), Michael S. Barr, Michelle W. Bowman, Susan M. Collins, Lisa D. Cook, Philip N. Jefferson, Alberto G. Musalem, Christopher J. Waller.

Against:

·       Stephen I. Miran (preferred a 50 basis point cut).

·       Austan D. Goolsbee and Jeffrey R. Schmid (preferred no change).

Key Excerpts from the Statement

·       Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments.

·       Inflation has moved up since earlier in the year and remains elevated.

·       The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, but recent readings have been higher than expected... Downside risks to employment have risen."

·       In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks."

This statement aligns closely with Chair Powell's remarks in the subsequent press conference, emphasizing caution amid competing risks and a well-positioned policy stance near neutral. The Summary of Economic Projections (dot plot, etc.) and full press conference transcript are available on related Fed pages.

Full text of Fed’s statement: December 10, 2025

Federal Reserve issues FOMC statement

”Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up through September. More recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.

In support of its goals and in light of the shift in the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3‑3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals. The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

The Committee judges that reserve balances have declined to ample levels and will initiate purchases of shorter-term Treasury securities as needed to maintain an ample supply of reserves on an ongoing basis.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Philip N. Jefferson; Alberto G. Musalem; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/2 percentage point at this meeting; and Austan D. Goolsbee and Jeffrey R. Schmid, who preferred no change to the target range for the federal funds rate at this meeting.”

Implementation Note issued December 10, 2025

“Decisions Regarding Monetary Policy Implementation

The Federal Reserve has made the following decisions to implement the monetary policy stance announced by the Federal Open Market Committee in its statement on December 10, 2025:

·       The Board of Governors of the Federal Reserve System voted unanimously to lower the interest rate paid on reserve balances to 3.65 percent, effective December 11, 2025.

As part of its policy decision, the Federal Open Market Committee voted to direct the Open Market Desk at the Federal Reserve Bank of New York, until instructed otherwise, to execute transactions in the System Open Market Account in accordance with the following domestic policy directive:

Effective December 11, 2025, the Federal Open Market Committee directs the Desk to:

·       Undertake open market operations as necessary to maintain the federal funds rate in a target range of 3-1/2 to 3-3/4 percent.

·       Conduct standing overnight repurchase agreement operations at a rate of 3.75 percent.

·       Conduct standing overnight reverse repurchase agreement operations at an offering rate of 3.5 percent and with a per-counterparty limit of $160 billion per day.

·       Increase the System Open Market Account holdings of securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years or less to maintain an ample level of reserves.

·       Roll over at auction all principal payments from the Federal Reserve's holdings of Treasury securities. Reinvest all principal payments from the Federal Reserve's holdings of agency securities into Treasury bills."

·       In a related action, the Board of Governors of the Federal Reserve System voted unanimously to approve a 1/4 percentage point decrease in the primary credit rate to 3.75 percent, effective December 11, 2025.

·       In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, St. Louis, and San Francisco.

This information will be updated as appropriate to reflect decisions of the Federal Open Market Committee or the Board of Governors regarding details of the Federal Reserve's operational tools and approach used to implement monetary policy.”

Operating Policy: December 10, 2025

Statement Regarding Reserve Management Purchases Operations

On December 10, 2025, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to increase System Open Market Account (SOMA) securities holdings to maintain an ample level of reserves through purchases in the secondary market of Treasury bills (or, if needed, of Treasury securities with remaining maturities of 3 years or less). These reserve management purchases (RMPs) will be sized to accommodate projected trend growth in the demand for Federal Reserve liabilities as well as seasonal fluctuations, such as those driven by tax payment dates.

Monthly amounts of RMPs will be announced on or around the ninth business day of each month alongside a tentative schedule of purchase operations for the subsequent approximately thirty days. The Desk plans to release the first schedule on December 11, 2025, with a total amount of RMPs of approximately $40 billion in Treasury bills; purchases will start on December 12, 2025. The Desk anticipates that the pace of RMPs will remain elevated for a few months to offset expected large increases in non-reserve liabilities in April. After that, the pace of total purchases will likely be significantly reduced in line with expected seasonal patterns in Federal Reserve liabilities. Purchase amounts will be adjusted as appropriate based on the outlook for reserve supply and market conditions.

The Desk was also directed in October to reinvest all principal payments from the Federal Reserve's holdings of agency securities into Treasury bills via secondary market purchases. The monthly schedule of planned purchases will include RMPs as well as these purchases.”

Operating Policy: Statement Regarding Standing Overnight Repo Operations-December 10, 2025

“In accordance with the FOMC implementation note issued December 10, 2025, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will make the following adjustments to standing overnight repurchase agreement (repo) operations effective December 11, 2025.

Going forward, standing overnight repo operations will no longer have an aggregate operational limit and will be conducted in a full allotment format using the FedTrade Plus trading platform.  Eligible counterparties may submit one proposition per security type during each of the twice-daily operation times, with a maximum per-proposition amount of $40 billion. Propositions will be awarded at the standing overnight repo operation rate immediately following the operation's close time.  All other operational parameters are unchanged.

The Desk plans to distribute the monthly secondary market purchases across two Treasury bill sectors. Purchase amounts in each sector will be determined by sector weights. These sector weights will be based on the 12-month average of the par amount of Treasury bills outstanding in each sector relative to the total amount outstanding across the two sectors as initially measured at the end of September 2025.”

Implementation of FOMC policies by ty: The implementation of the FOMC's decision by the NY Fed is to resume reserve management purchases (RMPs) of Treasury securities. This action is separate from the monetary policy stance (rate cut) and aims solely to maintain an ample supply of reserves in the banking system over time.

·       The FOMC directed the NY Fed Desk to increase System Open Market Account (SOMA) holdings through secondary market purchases of Treasury bills (or, if needed, Treasury securities with remaining maturities of 3 years or less).

·       Purpose: Accommodate trend growth in demand for Federal Reserve liabilities (e.g., currency, reserves) and seasonal fluctuations (e.g., tax payments).

·       Initial phase: Approximately $40 billion in Treasury bills starting December 12, 2025 (first schedule released December 11, 2025).

·       Pace: Expected to remain elevated for a few months to offset large non-reserve liability increases around the April 2026 tax season. Thereafter, purchases will likely reduce significantly, adjusted based on reserve supply outlook and market conditions.

·       Distribution: Across two Treasury bill sectors, weighted by 12-month average outstanding par amounts (measured from end-September 2025)

·       Includes reinvestment of principal payments from agency securities into Treasury bills (directed in October 2025).

·       Monthly announcements: On or around the ninth business day, with tentative 30-day schedules.

·       This marks the end of balance sheet runoff (QT) tightness, as reserves have reached "ample" levels, prompting a shift to modest growth in the balance sheet to prevent money market strains.

This aligns with the FOMC's main statement and Powell's press conference remarks, emphasizing that these operations have no implications for monetary policy stance. Fed to Start $40 Billion in Monthly T-Bill Purchases from Dec. 12 till at least April 26 to stabilize money market amid potential heavy outflows due to year-end tax payment & other obligations. The Federal Reserve will begin buying $40 billion of Treasury bills per month starting Dec. 12 to rebuild bank reserves that declined during balance-sheet tightening (QT). The Fed said reserves have fallen to ample levels and it will conduct short-term securities purchases as needed to maintain them. Quantitative tightening (QT) ended earlier this month (December 1). The NY Fed expects an elevated pace for several months to offset rising non-reserve liabilities in April before slowing. The Fed said the program is strictly for reserve management, not a return to quantitative easing (QE), but liquidity management.

Statement Regarding Standing Overnight Repo Operations: This statement implements part of the FOMC's December 10, 2025, decisions on monetary policy implementation for the Fed’s buying of TSY notes/bonds under RMP

Effective Date: December 11, 2025.

·       Main Change: The aggregate operational limit on standing overnight repurchase agreement (repo) operations is eliminated.

·       Operation Format: Operations will use a full allotment approach via the FedTrade Plus trading platform.

·       Submission Rules: Eligible counterparties can submit one proposition per security type during each of the twice-daily operation windows.

·       Maximum per-proposition amount: $40 billion.

·       Awarding: Propositions awarded at the standing overnight repo rate immediately after the operation closes.

·       Other Parameters: Remain unchanged.

Fed backstop to prevent any repo market tantrum: This adjustment will enhance the Standing Repo Facility (SRF) as a backstop to ensure short-term interest rates stay within the target range, even during periods of elevated money market pressures. It supports the ample reserves regime by allowing unlimited uptake when needed, promoting smooth market functioning without implying any change in monetary policy stance.

Fed’s SEPs (Summary of economic projections)-Outlook and Path Ahead into 2026

The updated Summary of Economic Projections (SEP, or "dot plot") from December 2025 showed limited further easing:

·       CY25 median projections: FFR ~3.60% (after 75 bps cumulative cuts); core inflation ~3.0%; real GDP growth ~1.7%; unemployment rate 4.5% (all 3MRA)

·       CY26 Median projection: One 25 bps cut in 2026 (federal funds rate to ~3.4% or 3.25%-3.50% range by year-end), unchanged from September 2025 against core inflation 2.5%, real GDP growth 2.3% and unemployment rate 4.5% (all 3MRA).                           

·       CY27 Median projection: One additional cut (25 bps) projected for 2027, approaching a longer-run neutral & terminal rate around 3% against projected core inflation 2.0%, real GDP growth ~2.0% (2.00-1.8%), and unemployment rate 4.2%.

·       2025-26 dit-plots & other SEPs (summary of economic projections) highlighted wide dispersion among officials, with views ranging from no cuts to more aggressive easing.

Full text of Fed Chair Powell’s opening statement: December 10, 2025

“Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. Although important federal government data for the past couple of months have yet to be released, available public- and private-sector data suggest that the outlook for employment and inflation has not changed much since our meeting in October. Conditions in the labor market appear to be gradually cooling, and inflation remains somewhat elevated.

In support of our goals, and in light of the balance of risks to employment and inflation, today the Federal Open Market Committee decided to lower our policy interest rate by ¼ percentage point. As a separate matter, we also decided to initiate purchases of shorter-term Treasury securities solely for the purpose of maintaining an ample supply of reserves over time, thus supporting effective control of our policy rate. I will have more to say about monetary policy and its implementation after briefly reviewing economic developments.

Although some key government data have yet to be released, available indicators suggest that economic activity has been expanding at a moderate pace. Consumer spending appears to have remained solid, and business fixed investment has continued to expand. In contrast, activity in the housing sector remains weak. The temporary shutdown of the federal government has likely weighed on economic activity in the current quarter, but these effects should be mostly offset by higher growth next quarter, reflecting the reopening. In our Summary of Economic Projections, the median participant projects that real GDP will rise 1.7 percent this year and 2.3 percent next year, somewhat stronger than projected in September.

In the labor market, although official employment data for October and November are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue to decline. The official report on the labor market for September, the most recent release, showed that the unemployment rate continued to edge up, reaching 4.4 percent, and that job gains had slowed significantly since earlier in the year. A good part of the slowing likely reflects a decline in the growth of the labor force, due to lower immigration and labor force participation, though labor demand has clearly softened as well. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. In our SEP, the median projection of the unemployment rate is 4.5 percent at the end of this year and edges down thereafter.

Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 percent longer-run goal. Very little data on inflation has been released since our meeting in October. Total PCE prices rose 2.8 percent over the 12 months ending in September, and, excluding the volatile food and energy categories, core PCE prices also rose 2.8 percent. These readings are higher than earlier in the year as inflation for goods has picked up, reflecting the effects of tariffs. In contrast, disinflation appears to be continuing for services. Near-term measures of inflation expectations have declined from their peaks earlier in the year, as reflected in both market- and survey-based measures. Most measures of longer-term expectations remain consistent with our 2 percent inflation goal. The median projection in the SEP for total PCE inflation is 2.9 percent this year and 2.4 percent next year, a bit lower than the median projection in September. Thereafter, the median falls to 2 percent.

Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today’s meeting, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 3-1/2 to 3-3/4 percent.

In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals. A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived—effectively a one-time shift in the price level. Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem. But with downside risks to employment having risen in recent months, the balance of risks has shifted. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. Accordingly, we judged it appropriate at this meeting to lower our policy rate by 1/4 percentage point.

With today’s decision, we have lowered our policy rate by 3/4 percentage point over our last three meetings. This further normalization of our policy stance should help stabilize the labor market while allowing inflation to resume its downward trend toward 2 percent once the effects of tariffs have passed through. The adjustments to our policy stance since September bring it within a range of plausible estimates of neutral and leave us well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks.

In our Summary of Economic Projections, FOMC participants wrote down their individual assessments of an appropriate path of the federal funds rate, under what each participant judges to be the most likely scenario for the economy. The median participant projects that the appropriate level of the federal funds rate will be 3.4 percent at the end of 2026 and 3.1 percent at the end of 2027, unchanged from September. As is always the case, these individual forecasts are subject to uncertainty, and they are not a Committee plan or decision. Monetary policy is not on a preset course, and we will make our decisions on a meeting-by-meeting basis.

Let me now turn to issues related to the implementation of monetary policy, with the reminder that these issues are separate from—and have no implications for—the stance of monetary policy. In light of the continued tightening in money market interest rates relative to our administered rates, and other indicators of reserve market conditions, the Committee judged that reserve balances have declined to ample levels. Accordingly, at today’s meeting, the Committee decided to initiate purchases of shorter-term Treasury securities (mainly Treasury bills) for the sole purpose of maintaining an ample supply of reserves over time. Such increases in our securities holdings ensure that the federal funds rate remains within its target range, and are necessary because the growth of the economy leads to rising demand over time for our liabilities, including currency and reserves.

As detailed in a statement released today by the Federal Reserve Bank of New York, reserve management purchases (RMP) will amount to $40 billion in the first month and may remain elevated for a few months to alleviate expected near-term pressures in money markets. Thereafter, we expect the size of reserve management purchases to decline, though the actual pace will depend on market conditions.

In our implementation framework, an ample supply of reserves means that the federal funds rate and other short-term interest rates are primarily controlled by the setting of our administered rates rather than day-to-day discretionary interventions in money markets. In this regime, standing repurchase agreement (or repo) operations are a critical tool to ensure that the federal funds rate remains within its target range, even on days of elevated pressures in money markets. Consistent with this view, the Committee eliminated the aggregate limit on standing repo operations. These operations are intended to support monetary policy implementation and smooth market functioning and should be used when economically sensible.

To conclude, the Fed has been assigned two goals for monetary policy: maximum employment and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2 percent goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. At the Fed, we will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to your questions.”

Highlights of Fed Chair Powell’s statements/comments in the Q&A: December 10, 2025

·       We think job gains have been overstated by 60k in recent months

·       Evidence is growing that services inflation has come down, and goods inflation is entirely due to tariffs

·       The labor market is cooling a touch more gradually than we thought

·       Inflation has come in a touch lower

·       In October said that there was no certainty of a December rate cut, and that was indeed correct

·       Why we moved today is due to the gradual cooling in the labor market

·       We think there's a negative 20,000 in payroll per month

·       Unemployment rate may only tick up one, two more tenths

·       Don't expect a sharper downturn in employment with rates in a plausible range of neutral

·       Have made progress this year in non-tariff-related inflation

·       I don't think a rate hike is anyone's base case- not hearing that

·       Some people feel we should stop here and wait

·       Some people feel we should cut once or more

·       People see either holding here or cutting

·       I could make the case for either side; it's a close call

·       One tool can't do two things at once

·       It's a challenging situation

·       For CPI, or household survey, we will understand it may be distorted by technical factors; data may be distorted because data was not collected in October and half of November

·       We'll need to look at data with a skeptical eye

·       Effects of rate cuts so far are only beginning to come in

·       Discussions we've had are as good as any in my 14 years

·       We'll need to be careful to assess household survey data

·       Our two goals are a bit in tension

·       Everyone at the table agrees inflation is too high

·       All agree that the labor market has softened, and there are further risks

·       The difference among them is how you rate those risks

·       Discussions we've had are thoughtful, respectful, and people with strong views

·       Fairly broad support for today's decision

·       We come together and reach a place where we can make a decision

·       Productivity has been structurally higher for several years now

·       Implication of projections is for higher productivity

·       Consumer spending has been resilient, and spending on AI data centers has held up business investment

·       Baseline expectation for next year is for a pickup in growth

·       AI spending continues

·       Extent and timing phrase points out that we'll carefully evaluate incoming data

·       Reserve management purchases (RMP) may remain elevated for a few months to alleviate money market pressures; Thereafter, expect purchases to decline

·       Standing repo operations are a critical tool to ensure the Fed funds rate remains in the target range

·       Some of the 2026 growth upgrade reflects the shutdown ending

·       Baseline outlook would be solid growth next year

·       GDP growth upgrade partly reflects resilient consumer

·       GDP growth upgrade partly reflects data center spending

·       Fed removed aggregate limit on standing repo operations

·       Fed well-positioned to wait to see how the economy evolves

·       Treasury purchases may remain elevated for a few months

·       Available evidence suggests that layoffs, hiring remain low

·       The committee judged that reserve balances fell to ample levels

·       Recent rate cuts should help stabilize the labor market

·       Rates are within the range of plausible neutral estimates

·       Monetary policy is not on a preset course

·       Fed will make decisions on a meeting-by-meeting basis

·       There is no risk-free path for policy

·       Balance of risks has shifted in recent months

·       Risks to inflation are tilted to the upside

·       Longer-term inflation expectations remain consistent with our goal

·       Inflation is somewhat elevated

·       Downside risks in the labor market

·       Little data on inflation has been released since the October meeting

·       Readings on inflation are higher as goods inflation has picked up (due to tariffs)

·       Disinflation continuing for services

·       September labor market release showed the unemployment rate edged up, and job gains slowed significantly

·       Our GDP growth forecast for 2026 has been revised up

·       Labor demand has clearly softened

·       Labor-market sentiment has been in decline

·       Less dynamic, somewhat softer labor market

·       Effects of shutdown should be offset by higher growth next quarter from reopening

·       Layoffs, hiring remain low

·       Consumer spending remains solid

·       Data suggest the economy is expanding at a moderate pace

·       Business fixed investment has continued to expand

·       Consumer spending solid

·       Housing sector remains weak

·       Purchase of shorter-term treasury securities to support effective control of policy rates

·       Available data suggest the outlook has not changed

·       The labor market appears to be gradually cooling

·       Inflation remains somewhat elevated

·       Outlook for employment inflation has not changed much from the last meeting

·       This is a unique situation with tension between our two goals

·       When both goals are equally at risk, they should be at neutral

·       We've been moving in the direction of neutral, now in the high end of the range of neutral

·       Haven’t decided for January

·       Don't want to address upcoming Supreme Court cases (on Trump tariffs and Fed Governor Lisa Cook removal)

·       Tick up in Fed funds rate says we're at ample reserves

·       Frontloading the next few months of purchases to get through tax season

·       Doesn’t feel like a hot economy

·       We got to ample reserves a little faster than we had thought we would

·       April 15 is coming up, and we want ample reserves even on tax day

·       Seasonal buildup was going to happen anyway, plus there's secular growth in the balance sheet

·       Fed chair nomination process doesn't hinder current task

·       Rise in long rates may be due to expectations for higher growth

·       Nothing is happening in long rates that suggests concern about inflation in the long run

·       Inflation compensation in markets is at very comfortable levels, past the very short term

·       Inflation compensation at very comfortable levels

·       From here, the peak should be a couple of tenths higher, or less, on inflation

·       After that should see it come down in the back half of next year

·       if no new tariff announcements, inflation from goods should peak in Q1

·       Tariffs are likely to be one-time price increases

·       If we didn’t have to worry about the labor market, the policy rate would be higher

·       Will need to have some years where wages outpace inflation for people to feel good about affordability

·       We are working hard on keeping inflation under control and supporting the labor market

·       Everyone should understand we will deliver 2% inflation

·       The labor market has significant downside risks

·       People care a lot about the labor market

·       If you get away from tariffs, inflation is in the low 2s

·       We hear loud and clear how people are experiencing higher costs

·       Don’t want to push down on job creation with our policy

·       It's really tariffs causing most of the inflation overshoot

·       Labor supply has also come down sharply

·       There's an overcount continuing in payroll job numbers; forecasters generally understand that

·       Quarter-point cut in fed funds rate may not make much of a difference on housing affordability

·       Housing market faces some really significant challenges

·       We hear a lot about a K-shaped economy from our contacts

·       AI is probably part of the weak jobs story, but not a big part

·       Don't know the economic impact of tariffs being struck down

·       Right now, it's early days with AI and not showing up in layoffs yet

·       Views are varied among governors and among presidents

·       People on both sides in both groups of policymakers

·       All things equal, higher productivity means a higher rate, but not all things are equal

·       Asked if we are seeing a positive productivity shock, says yes

·       Also, can see the prospects for productivity from AI

·       We expect, most of us, that inflation will be a one-time price increase, but risk that it's not

·       A less likely possibility is that the labor market gets tight and boosts inflation; not particularly likely

·       Policymakers see the picture similarly, but the risks differently

·       Risk is that tariff inflation turns out to be more persistent

·       Have not built enough housing for a long time

·       Tools to address housing shortages are not the fed's tools

·       Risk of inflation is pretty clear to see

·       We have an extraordinary economy

·       Policy rate is in the range of neutral

·       Want to turn this job over to whoever replaces me, with the economy in really good shape

·       I want inflation under control and the labor market to be strong

·       All my efforts are to get to that place

·       Asked if he will stay on the Fed board after his chair term ends, says he has nothing new on that

Summary of Chair Jerome Powell’s Press Conference – December 10, 2025

In the December 10, 2025 press conference following the FOMC’s 25 bps rate cut to bringing the Federal Funds Rate (FFR) to 3.50–3.75%, Chair Powell described the U.S. economy as resilient but facing a challenging balancing act between the Fed’s dual mandate goals (minimum price stability @2.0% and minimum unemployment @3.5%): inflation remains somewhat elevated (largely due to tariffs as per Fed), while the labor market continues to cool gradually with rising downside risks; November unemployment reached 3.5% amid reversal of some immigrations and higher labor force participation. In 2026, the Fed has to bring down both the core inflation & unemployment rate. By around 50 bps to 2.5% and 4.0-4.2%. Thus, the Fed has cut rates by another 25 bps as insurance (front loading) to keep the rate slightly below 4.0% neutral levels to manage the increasingly higher unemployment rate.

Now the FOMC views the current policy stance as within a broad range of estimates of neutral, positioning the Fed to carefully assess incoming data before deciding on the extent and timing of any further adjustments. Powell emphasized a data-dependent, meeting-by-meeting approach with no preset course, noting the absence of a “risk-free path” given contradictory/opposing risks to employment (downside) and inflation (upside).

·       Growth: Upgraded to 1.7% for 2025 and 2.3% for 2026 in the SEP, driven by resilient consumer spending, AI-related business investment, and supportive fiscal policy.

·       Labor market: Gradual cooling; unemployment projected to peak around 4.5% and edge lower thereafter. Powell highlighted potentially negative underlying job growth after adjusting for believed overstatements in payroll data.

·       Inflation: PCE at 2.8–2.9%; most of the overshoot attributed to tariff-driven goods inflation, expected to be largely a one-time price-level shift that peaks in Q1CY26 and fades thereafter (assuming no major new tariffs). Services disinflation continues.

·       SEP dot plot: Median federal funds rate unchanged at 3.4% end-2026 and 3.1% end-2027, implying limited further easing (roughly one 25 bps cut in 2026).

·       Balance sheet: Separate from monetary policy, the Fed announced resumption of shorter-term Treasury purchases ($40 billion initially/PM) to maintain ample reserves (min ~20% on nominal GDP $30T; i.e., above $6T)

Powell acknowledged significant Committee divisions (reflected in dissents and “soft dissents”), but described discussions as thoughtful and respectful, arising naturally from the unusual tension between the two mandate goals.

Key Quotes from Chair Powell:

On the current policy stance and outlook:

v “With today’s decision, we have lowered our policy rate 3/4 percentage point over our last three meetings… The adjustments to our policy stance since September bring it within a range of plausible estimates of neutral and leave us well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, the evolving outlook, and the balance of risks.”

On the challenging dual-mandate tension:

v “In the near term, risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation. There is no risk-free path for policy as we navigate this tension between our employment and inflation goals.”

On tariffs and inflation:

v “A reasonable base case is that the effects of tariffs on inflation will be relatively short-lived—effectively a one-time shift in the price level. Our obligation is to make sure that a one-time increase in the price level does not become an ongoing inflation problem.”

On the labor market and downside risks:

v “In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months---the balance of risks has shifted.”

On productivity and growth upgrade:

v “The implication is obviously higher productivity. And some of that may be AI-- productivity has just been almost structurally higher for several years now.”

On future rate path and two-sided risks:

v “Monetary policy is not on a preset course, and we will make our decisions on a meeting-by-meeting basis… we are well positioned to wait to see how the economy evolves.”

Powell explains why the Fed cut rather than waiting until January: 

v The economy has added around 40K jobs per month since April, but due to over counting, the actual number could be closer to a *loss* of 20K jobs per month: "I think you can say that the labor market has continued to cool gradually, maybe just a touch more gradually, than we thought---It doesn't feel like a hot economy that wants to generate a Phillips-curve-type of inflation."

Three Fed officials penciled in not only no cut today, but also no cuts next year. Their projection of a 3.9% end-2026 rate could imply they have a hike next year.

Powell clarifies: "I don't think that a rate hike is anybody's base case at this point. I am not hearing that."

In brief, Chair Powell and the Fed statement reinforced caution: Future adjustments (rate cuts) will "carefully assess incoming data, the evolving outlook, and the balance of risks." Markets and some analysts interpret this as signaling a likely pause in early 2026, unless labor market weakness accelerates or inflation recedes faster than expected. Overall, the Fed appears to be shifting toward a more restrained pace of easing in 2026, balancing dual mandate risks amid elevated (but moderating) inflation and a resilient economy. But Fed officials are also creating confusion about neutral rate levels (real rate of interest). Previously, most of the Fed officials were batting for 100 bps (wrt average core inflation); but now the narrative changes to 75-50 bps in a matter of a few weeks amid intensified Trump pressure and Trump’s strategy to use CEC Hassett and Treasury Secretary Besant’s 24/7 dovish and anti-Fed comments as a proxy for him to front run Fed’s policy.

Overall, Powell conveyed cautious optimism: the economy is on a solid trajectory toward both mandate goals, but the Fed will proceed deliberately given elevated uncertainty and competing risks. Powell more or less declared the recalibration phase complete—they're now "well positioned to wait." Powell blamed the committee's divide on the unusual tension in the dual mandate and validated both sides of the debate. Powell also made a surprisingly direct case that job growth may be negative due to measurement challenges. "Gradual cooling in the labor market has continued just a touch more gradually," as anticipated, which reduces the level of concern around services inflation. Even if rates are closer to neutral, rate hikes aren't anyone's base case. The range of views runs from "stop here" to "cut more."

Trump- the next de facto Fed Chair?

On December 10, 2025, shortly after the Federal Reserve announced its 25 basis point rate cut (lowering the federal funds rate to 3.50–3.75%), President Trump criticized the decision during a White House roundtable discussion with business leaders. He described the cut as insufficient, arguing it should have been larger to better support economic growth, and personally attacked Fed Chair Jerome Powell.

On December 10, after the Fed’s 25 bps ‘expected’ cut-Trump said Fed’s 25 bps Cut Should Have Been “At Least Doubled” President, Trump said the Fed’s quarter-point rate cut was too small and should have been “at least doubled,” calling Chair Powell “a stiff.” Trump said he will interview former Fed Governor Kevin Warsh as a potential successor, alongside National Economic Council Director Kevin Hassett.

On December 16, a WSJ report indicated President Trump is set to interview Fed Governor Christopher Waller for the potential Fed chair on Wednesday. While Waller is favored by some economists and Trump’s inner circle of influential business heads for his rate-cut advocacy and intellectual consistency, he is considered an underdog because he lacks the personal relationship with Trump that frontrunners Kevin Warsh and Kevin Hassett enjoy. Treasury Secretary Scott Bessent indicated a decision is likely in early January.

There are essentially three paths to lower rates in 2026:

·       Wait for evidence that inflation is coming down (which will take a bit more time at a minimum).

·       See rising evidence that the labor market is falling very ill.

·       If the economy opens the door for the rate cuts Trump badly wants, there is a good chance it will do so by weakening in ways no president would welcome.

·       Short of that, Trump would need "a major change in the composition of who sits around" the Fed's conference room table

 And markets/investors are closely watching that: The Trump administration’s efforts in recent months to challenge the institutional norms regarding the Fed.

On December 13, Trump said he thought the next Fed chair should consult with him on rates: “Typically, that’s not done anymore. It used to be done routinely. It should be done,” Trump said. “It doesn’t mean—I don’t think he should do exactly what we say. But certainly we’re—I’m a smart voice and should be listened to.” Trump also said he thinks rates should be at 1% or lower. Trump added: “Because the U.S. is the best credit, we should have the lowest rate in the world”.

Trump has consistently pushed for more aggressive rate reductions throughout 2025, viewing higher rates as a drag on the economy despite elevated inflation (partly attributed to his tariffs). The Fed's updated projections signaling only limited further easing in 2026 likely fueled his dissatisfaction.

Key Comments from Trump on Fed (December 10, 2025)

·       Called the 25 bps cut a "rather small number" or "rather small cut".

·       Stated it "could have been doubled, at least doubled" (i.e., preferring a 50 bp cut).

·       Referred to Jerome Powell as "a stiff" and a "dead head".

·       Emphasized a mindset shift: "We have to get a mindset that when a country is doing well, you don’t want to kill the growth."

·       Noted the tendency in the past to raise rates after strong economic results, saying: "We're going to go back to the old days-- When we announced great results, it doesn't mean we're going to raise interest rates and try and kill it."

The White House later (December 11) officially indicated Trump was "happy" to see rates come down but believed more reductions were needed. This aligns with his ongoing pressure on the Fed and his search for a successor to Powell (whose term ends in May 2026), where support for immediate rate cuts is a key criterion for nominees.

Conclusions

On December 10, 2025, the Fed delivered a third straight 25 bps cut, lowering the target range to 3.5–3.75 percent, but signaled a higher bar for further easing amid the most internal dissents in six years. The vote was 9–3 (vs 9-2 expected) with Austan Goolsbee and Jeff Schmid opposing the cut and Stephen Miran advocating a 50 bps move. Six of nineteen FOMC participants projected a year-end rate above pre-decision levels, highlighting broad hesitation. Fed officials cited stalled inflation progress and a cooling labor market, while noting the “extent and timing” of additional cuts will depend on the outlook. Powell, whose term ends in May, faces a divided committee-each cut risks losing the support of a few more participants, requiring data to win them back. Fed/Powell is now again increasingly terming the current spate of Trumpflation as transitory, like post-COVID Bidenflation! The Fed is now at 3% and there may be no compelling confidence by the Fed to bring down core inflation to 2% anytime soon, at least before 2027.

The Fed delivered another 25 bps insurance cut amid intense political pressure on the Fed and deep divisions in the FOMC. Powell & Co. dramatically changed the narrative in favor of rate cuts in just a matter of a few weeks by suddenly becoming ultra hawkish on employment and dovish on inflation. Contrary to earlier perceptions, Powell/Fed now sees much more risk to employment to the downside rather than underlying inflation to the upside. Powell and his inner circle now see transitory Trump tariff inflation and peaking of the underlying core inflation by March’26 under the base case scenario of no further Trump tariff tantrums into 2026.

Fed Chair Powell and most of the other FOMC participants were clearly not in favor of another 25 bps back-to-back rate cut in December’25. The US core inflation is now hovering around 3.0% on an average (vs 2.0% targets) and unemployment rate 4.3% (vs 4.0% Fed comfort levels and 3.8-3.5% Fed target); i.e. Fed needs to lower core inflation by at least 100 bps and unemployment rate 80 bps on a sustainable basis to achieve its dual mandate of maximum employment (as per current & evolving economic situations/labor market conditions) and minimum price stability. For this Fed has to keep the real rate at neutral levels or slightly above neutral levels (modestly restrictive) as the Fed needs to bring down core inflation by 100 bps vs unemployment 80 bps; i.e. weightage of price stability mandate is more than maximum employment at present.

For the price stability mandate, the Fed now theoretically needs rate hikes to bring down the demand side of the economy to match constrained supply. But for the employment side of the mandate, the Fed also needs to cut rates moderately to prevent further economic slack. Thus Fed is now maintaining real policy rates at neutral levels; i.e. +1.0% from average core CPI inflation, which is 4.0% (vs 3.0% core CPI-3MRA); not restrictive (+1.50% from average core CPI) or accommodative (-0.50% from average core CPI).      At 3.0% average core inflation, accommodative, neutral, and restrictive Fed repo rates will be 2.50%-4.00%-4.50% respectively.

But the Fed has no definitive rate of neutral rate-at least publicly-like unemployment levels, so that it can change the ‘goal post’ as per evolving economic & financial conditions. At present, most of the FOMC participants are also of the view that at a 4.00% Fed REPO rate, the policy is slightly/modestly restrictive to ensure gradual disinflation. As core inflation target deviation (+100 bps) is more than unemployment (50-80 bps), the Fed is now prioritizing the price stability mandate more than maximum employment.

Also, Fed’s ‘neutral rate guru’, the NY Fed President Williams, views the 4.00% REPO rate as slightly above neutral currently, considering the softening of the labor market. Thus, Williams suddenly turned dovish from a centrist/hawkish stance a few weeks ago. Williams may now be advocating another 25 bps ‘insurance’ rate cuts to ensure a soft landing. Williams may also be regarding + 0.75% as an ideal real rate (neutral) rather than +1.00% or +0.50% (pre-COVID). But the big question is whether the rest of the FOMC participants, including Chair Powell, now stand behind Williams or not-eventually this is a question of Fed unity amid Trump politics. The Fed's credibility is at stake.

The Fed delivered another 25 bps back-to-back cut, usually seen during any financial crisis amid divisions on the FOMC; contrary to the earlier narrative just a few weeks ago, Fed Chair Powell and his right-hand man, the NY Fed President Williams, now ‘really’ believed that the economy needs another cut. Powell pushed the decision through despite many officials' favoring no change. Monetary easing typically lifts housing and industrial activity within months, and weak private payroll indicators and Beige Book signals of softening employment may have supported the move.

Powell’s influence may fade as President Trump prepares to name a successor, with Hassett, Warsh, and Waller now emerging as the front-runners. Even if the next Fed Chair may be data-sensitive, fiscally focused, and less Trump savvy (like Waller, Fed’s institutional credibility and independence will be at stake. This, along with Trump’s fiscal stimulus plans and any aggressive rate cuts below 3.0% longer-term neutral/terminal levels, may fuel a temporary boom before risking inflation and possible tightening in 2027 unless productivity rises dramatically, aided by the so-called AI boom.

The QE by any other name (RMP) is still inflationary (higher liquidity/M2/Money supplies). The Fed just announced it will be buying T-bills “on an ongoing basis.” Given that long-term rates will rise on this inflationary policy shift, it won’t be long before the Fed expands and extends QE-5 to longer-dated maturities: Gold surged on QE-5 (?). Powell pushed through a rate cut, facing the broadest reservations for arguably any decision during his nearly eight-year tenure, and in doing so, that weaker support implicitly delivered a pointed message to President Trump and his own successor: Waltzing to lower rates isn't going to be as painless as you think.

The Fed has made a policy mistake by holding rates at too high levels (5.50%) for too long (mid 2022-2024) despite a clear indication of falling core inflation and rising unemployment rate from 2023. Fed could have cut rates from Jan’24 rather than waiting for Sep’24, and cut rates 50 bps-like in a crisis-era panic mode. Fed was already behind the curve. Now in 2025, the Fed may again commit the same policy mistake by going for too many insurance cuts back-to-back under Trump’s pressure. The present trend of a higher unemployment rate is structural due to Trump’s bellicose policies and overall political & policy uncertainty rather than higher borrowing costs.

As per Taylor’s modified rule, the Fed should have cut 50 bps in 2025 and kept the Dec’25 repo rate at 4.00% and go for 50 bps gradual rate cuts each in 2026-27. Now the Fed projected a 25 bps cut in 2027 and 2028 each

Overall, as a base case scenario, the Fed should cut 50 bps each in 2025 and 2026; but if US core inflation indeed surges further to 3.50% on average in 2026, it would be very difficult for the Fed to justify 50 bps rate cuts in 2026 even after assuming Trump’s tariff inflation is transient. And a potential new Fed leadership, loyal to Trumponomics and Trump’s ZRIP philosophy, may find it difficult to justify even 50 bps rate cuts in 2026.

At present, as the US economy is solid in terms of overall economic activities, there is an upside risk in both inflation and unemployment; i.e., there may be a stagflation-like scenario in 2026. Thus, the Fed has to wait for at least till H1CY26 for Trump policies, actual data & evolving outlook, and may not cut rates before September 26. Fed works on potential economic outlook, not actual data, to stay ahead of the curve. The weighted average Trump tariffs are now around 10% and the Fed has to wait to see the actual impact of the Trump tariffs in 2026.

Despite Trump's savvy potential next Fed Chair, Williams and Waller’s pivot and advocacy for December’25 rate cuts, Waller & Co. was clearly in the minority camp. Trump’s ultra-bullying tactics have made known Fed doves & hawks united behind Chair Powell, and thus Powell almost poured cold water on December’25 rate expectations with a hint of hawkish FOMC minutes. Fed may show another 50 bps rate cuts in 2026 in its December’25 dot-plots with a cautionary note.

Trump may stick to his flip-flop (bullying) negotiation tactics to get better tariff deals for the US, and he may continue this back & forth on tariffs till at least December 2025. Looking ahead, if, by early 2026, Trump’s tariff policy does get clarity, then the Fed may modify its dot-plots in March’26 SEP and go for a 50 bps rate cut each in 2026-27 for a terminal rate of 3.00% by Dec’27 instead of Dec’28. As the present weakness in the US labor market is largely structural due to Trump policy uncertainty and AI issues, the Fed’s rate cuts may not ensure higher employment; it’s now a supply issue, rather than demand; the Fed’s policy tool largely works on demand management, not supply.

Some Trump supporters are arguing that if the Fed cuts the rate further, then companies/businesses will borrow more to employ more people. But this is a bizarre idea. The US needs to impose a fair AI policy to ensure no harm in the labor market, while keeping corporate America in good shape. Trump also needs to ensure a middle ground in tariff policies to ensure price stability, considering the harsh reality on the ground.

Ahead of the Nov’26 mid-term election, the Trump admin should rectify its policy mistakes and focus more on core work, rather than engaging in 24/7 ‘Reality Shows’ with monotonous nonsense talks. As of now, Trump is on the verge of losing the House in the Nov’26 mid-term election and also his Trifecta. This may push the US economy for more political & policy uncertainty, even paralysis, making the Fed’s jobs more difficult. And US banks are now no longer extending easy credit amid a weak labor market, constrained real wage growth, higher cost of living, and rising NPA. Most of the US banks are now focusing on return of capital rather than return on capital and only providing loans to quality borrowers. Thus Fed’s rate cut may not help in higher lending; US banks are now investing more in bonds of the government & blue-chip corporates, ensuring risk-free assured return.

Bottom line

Overall, the Fed’s Dec’25 25 bps rate cut, dot-plots, and subsequent Powell comments suggest a less hawkish rate cut stance. Although, Fed projected 25 bps rate cuts each in 2026-27, the Fed may cut 25 bps each in H1 and H2CY26 to deal with the increasing unemployment rate, which reached 4.6% in Nov’25. Trump may appoint experienced Waller as the next Fed Chair to keep some Fed credibility rather than Hassett or Warsh, as both of them are known Trump loyalists, which may harm not only the Fed’s institutional independence, but also the global trust in USD as the undisputed ‘King’ of global reserve currency.

Market impact:

As of December 16, 2025, financial markets have shown increased volatility and a clear risk-off tilt in the week following the FOMC's 25 bps rate cut (to 3.50–3.75%) and the subsequent release of delayed BLS employment data for October/November (impacted by the earlier government shutdown). Stocks, Gold surged initially on a less hawkish Fed rate cut after the December 10 Fed monetary policy. But stocks stumbled on December 16 on concerns of a hard landing after the latest BLS data showed an elevated unemployment rate at 4.6%, but with higher labor force participation; Gold, Silver (precious metals), and UST surged on risk-off mode. The US economy may face stagflation or even an all-out recession in 2026 amid increasing subprime/prime crisis (loan defaults/delinquencies, etc), Trump’s chaotic policies, and a looming AI/Crypto bubble. Thus Fed may also go to almost ZIRP and QE-4 (?) in 2026 (as usual)- just after 5 years of the last GFC (global financial crisis-GFC).

Trump 2.0 report card (2025):

Historically, most Fed rate cut cycles have coincided with an economic crisis (recession), and growing political & policy paralysis under Trump 2.0 may accelerate that. The Fed had cut 100 bps in late 2024 (Sep-Dec) under Biden; the benefit of which should have been reflected in 2025 under Trump 2.0, as any meaningful rate action & other monetary policies typically take 6-12 months for full transmission in the real economy.

But due to Trump policy uncertainty, Trump 2.0 economic report not good: Unemployment rate surged from 4.1% (Dec’24) to 4.6% (Nov’25); core CPI inflation is almost unchanged at ~3.2% vs 3.0%, while US real GDP growth have slowed down to around 1.7% (for 2026) from Biden era post-COVID average (2021-24) ~2.7% despite Fed rate cut of 1.75% cumulative from September’24 to December’25. Even if the US economy will grow around 2.3% in 2026 as per Fed projections, after Q4CY25 was affected due to the drama of the US government shutdown, the average real GDP growth under Trump 2.0 will be around 2.0% for the 1^st two years, contrary to his narrative of 6-20% growth!

Technical outlook: DJ-30, NQ-100, SPX-500 and Gold

Looking ahead, whatever may be the narrative, technically Dow Future (CMP: 48500) now has to sustain over 48800 for a further rally to 49150*/49500-49700/50000 in the coming days; otherwise, sustaining below 48750, DJ-30 may fall to 48200/48000-47800/47400 and 46800/46000/45700* and 45200* in the coming days.

Similarly, NQ-100 Future (25450) now has to sustain over 25800 for a further rally to 26000/200-26500/26700 in the coming days; otherwise, sustaining below 25750-25650, NQ-100 may fall to 25200/25000-24800/24500 and further 24200/24000-23800/23600 and 22800-22400 in the coming days.

Looking at the chart, technically SPX-500 (CMP: 6880) now has to sustain over 6935 for a further rally 6955/6975-7000/7100 and 7200/7300-7500/8300 in the coming days; otherwise, sustaining below 6915-6890, may further fall to 6825/6790*-6725/6695 and 6650/6575-6475/6425* and 6375/6300-6250/6190 in the coming days.

Looking at the chart, Technically Gold (CMP: $4340) has to sustain over 4380 to 4395/4405*-4425/4455 and 4475/4500 to 4555-4575 and even 5000 zone in the coming days; otherwise sustaining below 4375-4355, Gold may again fall to 4300/4260*-4230/4170 and 4135/4110-3940/3820 and 3745/3680-3640/3600 levels in the coming days.

 Disclaimer: 

•  I have no position or plan to have any position in the above-mentioned financial instruments/assets within the next 72 hours.

•  I am an NSE-certified Level-2 market professional (Financial Analyst- Fundamental + Technical) and not a SEBI/SEC-registered investment advisor. The article is purely educational and not a proxy for any trading/investment signal/advice.

•  Please always consult with your personal financial advisor and do your own due diligence before any investment/trading in the capital market.

•  I am a professional analyst, signal provider, and content writer with over ten years of experience.

•  All views expressed in the blog are strictly personal and may not align with any organization, which I may be associated.

•  If you want to support independent & professional market analytics, you may contribute to my PayPal A/C: asisjpg@gmail.com

•  For any professional consultation about the financial market (EQ/COMM/FX), investment, trading ideas, and real-time, professional-grade, almost 90% perfect signals, please DM: ashishghoshjpg@gmail.com or ping me at Telegram id: asisjpg

•  Professional consultation fees/trading/investment signals/short reports: @10$/symbol

 

You may also check out: http://www.investing-referral.com/aff270.