The stage is set for the US Federal Reserve Chair Powell to announce the monetary policy decisions. The 2-day FOMC meeting, concluding on December 10, is a crucial event for the markets for two key reasons.
One, in the December FOMC meeting, the summary of economic projections will be released, indicating the dot plot. The dot plot reveals the Fed members’ expected rate cuts in the year ahead. Secondly, the market will be looking for signals from Powell’s post-announcement press conference. These two events are expected to set the tone for the markets in 2026.
Expectations from the December FOMC Meeting
The Federal Open Market Committee is expected to implement a 25-basis-point interest rate cut for the third consecutive time at its final meeting of the year.
“Employment growth remains slow, and inflation data seems reasonable given the previous concerns over tariffs and policy uncertainty. The Fed has highlighted the risk and unusual nature of today’s labor market and would likely tilt toward supporting growth rather than fighting inflation,” says Gary Pzegeo, CFA, Co-CIO of CIBC Private Wealth US.
Top brokerage houses are also pointing towards a 25bps rate cut. Nomura anticipates a 25-basis-point interest rate cut by the US Fed in this week’s meeting, reflecting a trend among global central banks. They also expect further cuts of 25 basis points in June and September 2026.
J.P. Morgan and Morgan Stanley have revised their predictions ahead of the policy meeting, now expecting a decrease in borrowing costs rather than the previously anticipated maintenance of those rates.
Fed Challenges
Fed officials could be facing challenges in making rate decisions due to delayed economic data from the government shutdown, with October CPI data not published and no recent jobs report available. Ongoing concerns about the labor market may prompt the central bank to further cut interest rates, but inflation remains above the preferred 2% level for the US Fed. Therefore, Powell’s commentary will be crucial to peek into the minds of the Fed members.
If the Fed cuts rates by 25bps in December, the federal funds rate will stand at 3.5% to 3.75% level.
“Still, it will not be unanimous, with hawkish dissenters likely in the mix, such as Fed Governor Jeffrey Schmid, Chicago Fed President Austan Goolsbee, St. Louis Fed President Alberto Musalem, and Powell. Their justification will be a lack of official data and persistent inflationary pressures,” says Aaron Hill, Chief Market Analyst from FP Markets.
The FOMC Meeting live streaming will be available at the YouTube channel of the US Federal Reserve at 2 PM ET, followed by the press conference by Fed chair Powell at 2.30 PM.
At its October 2025 meeting, the Fed announced the ending of Quantitative Tightening (QT), a policy aimed at reducing its balance sheet by letting bonds mature without reinvesting proceeds. This approach has been in place since mid-2022, initiated to address the enlarged balance sheet resulting from extensive asset purchases during the COVID-19 pandemic.
US Markets
Nasdaq and S&P 500 are currently near record highs, with market sentiment poised to rise if aggressive rate cuts are signaled. Conversely, indications of a tighter regime from Powell could lead to a fall in valuations.
Despite the US Fed delivering a 25bps as per expectations, some experts are of the view that the market may not rally.
“The market has already moved on the expectation of a cut; it’s well and truly priced in. When the decision comes, the buying slows. The second reason the rally could suffer is what the rate decrease means for the US economy, particularly jobs. If job growth weakens, profits come under pressure. Interest rates are lowered because the economy is slowing,” says Nigel Green, CEO of deVere Group.
Whether there will be a Santa Claus rally in 2025 depends on the outcome of the December FOMC meeting and the cues provided by the dot plot and Powell. Also, Trump’s candidate for Fed chairman, widely believed to be Kevin Hassett, could alter expectations for 2026. Powell is set to resign as Fed chair in May 2026.