The Federal Open Market Committee’s (FOMC) December meeting minutes, which are to be released on Tuesday, are expected to shed light on how Fed members perceive the state of the economy ahead of the committee’s next meeting in late January.
Powell and his team opted to decrease rates by 25 basis points in December, bringing the overall rate cut to 75 basis points, as announced in 2025.
The 3rd rate cut on December 10 was different from the earlier two rate reductions. Unlike the previous occasions, when rates were cut to tame inflation, this time, the Federal Reserve cut the interest rates by 25bps to support the weakening labor market.
Powell’s press conference had two key takeaways for the markets: he sounded less hawkish than the markets had expected. He suggested that future rate cuts are unlikely by reaffirming confidence in the US economy’s resiliency.
The minutes of the previous US Fed FOMC meeting will be released on December 30 at 2:00 p.m. The next US Fed FOMC meeting is to be held on January 27 – 28, followed by a Press Conference by Chair Powell.
Meanwhile, Dow, S&P 500, and Nasdaq 100 are closing the year positively, despite a notable decline following Trump’s tariff announcement. In 2025, markets recovered from a decline in April to put key US stock market indexes on track to close up by double digits.
The first session of 2026 will begin on Friday, as markets will be closed on January 1, 2026. Strong trading in December and January can set the tone for investors, according to history, and many predict another volatile year for markets.
Rate Cut Expectations in 2026
Fed officials expect one rate decrease next year, consistent with their September forecast, while expressing a cautious approach to any cuts, emphasizing the importance of carefully assessing the timing and magnitude of any future reductions. “The ‘dot plot’ again pointed to a median estimate of one further rate cut delivered in each of 2026 and 2027.
Inflation Data
The U.S. Bureau of Labor Statistics (BLS) on December 18 released the US CPI data for November. The all items index rose 2.7 percent for the 12 months ending November, after rising 3.0 percent over the 12 months ending September. The all items less food and energy index rose 2.6 percent over the last 12 months.
Recent US Jobs Data
The government shutdown caused a delay in the publishing of the most recent job data, which are generally issued monthly. An estimated 105,000 jobs were lost in October, with 64,000 created in November, according to the latest study released last week.
In the four weeks ending December 6, US private companies gained an average of 11,500 jobs each week, down from 17,500 the previous week, according to ADP’s NER Pulse recently issued report.
Initial claims for state unemployment benefits dropped for a second straight week, declining by 10,000 to a seasonally adjusted 214,000 for the week ended December 20, but the unemployment rate likely remained high in December amid sluggish hiring.
How Members Voted
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 voted in favour of 25bps rate cut.
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.
Austan D. Goolsbee and Jeffrey R. Schmid, preferred no change to the target range for the federal funds rate in the December FOMC meeting.