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Fed Rate Cut Looms: Santa Rally or Recession Signal?
8 Dec
Summary
- Fed expected to cut rates by 25 basis points on December 10, 2025.
- Markets eye Chair Powell's guidance for 2026 economic projections.
- A dovish tone could boost stocks; hawkish surprises may stall momentum.
The Federal Reserve's FOMC meeting on December 9-10, 2025, is poised to deliver an expected 25-basis-point rate cut, moving the target range to 3.50%-3.75%. This decision, driven by cooling employment and inflation, could catalyze a year-end Santa Rally. Investors are particularly focused on Chair Powell's press conference for insights into 2026 policy, economic projections, and potential shifts in investment strategies towards value and small-cap stocks.
While markets largely price in the rate reduction, uncertainty lingers regarding the Fed's future path. Persistent inflation above the 2% target and potential labor market softening could lead to hawkish surprises, dampening market optimism. Delayed economic data further heightens volatility, leaving bond markets tense and investors seeking a delicate balance of lower rates and economic resilience.
