“As the Fed’s last meeting of 2025 draws closer, the question is less about if it will act, and more about how and what it signals,” said David Barrett, CEO of EBC Financial Group (UK) Ltd. “The Federal Government resume operations after the funding bill passed both houses of Congress and received the President’s approval. Because the Fed is working with incomplete data and a visibly divided committee, its messaging this month carries as much weight as the rate decision itself, a test of credibility, cohesion, and how confidently it can guide markets through a murky economic backdrop.”
Economic Context
The Fed’s October meeting saw a 25-basis point reduction in the interest rate range to 3.75%–4.00%, signalling continued caution in the face of a slowing labor market. However, the minutes from that meeting revealed a significant divide among policymakers. Some participants viewed a December rate cut as appropriate. But a larger group expressed concerns that if inflation remained persistently higher than the 2% objective, they favour a pause rather than further easing. Delays and cancellations in key economic data due to the government shutdown have further clouded the Fed’s view of labor market and inflation trends, making forward guidance even more critical.
Key Considerations for December
Analysts at EBC are closely monitoring how the Fed will balance the trade-off between supporting a softening labour market and keeping inflation within its target. Comments from influential policymakers, including Christopher Waller, suggests that weaker employment justifies additional easing, while others caution that persistent inflation must remain the priority. The upcoming meeting is also expected to address broader risks, including global economic conditions, financial stability concerns, and the conclusion of the Fed’s quantitative tightening programme, which officially ends on 1st December.
Market Implications
For the markets, the implications are wide-ranging. Fixed income investors will scrutinise the tone of the meeting for indication of future yields, particularly at the short end of the US Treasury yield curve, where maturities are most sensitive to shifts in Fed policy expectations. Currency and global flows may respond sharply to any hint of a pause or hawkish tilt, with emerging-market currencies especially sensitive to U.S. monetary signals. Equities and other risk assets are likely to react not only to the decision itself but to the clarity and perceived commitment of Fed communication. Traders will need to adopt a scenario-based approach, preparing for both a modest cut combined with dovish messaging or a pause accompanied by cautious language, as the delayed data leave the Fed’s true stance harder to interpret than usual.
Looking Ahead
The December FOMC meeting is shaping up to be far from routine. Employment is showing cracks, inflation remains stubbornly above target, and consensus among policymakers is fractured. The outcome will influence not just the federal funds rate, but the direction of global markets and the strategies of traders navigating uncertainty.
For more analysis from EBC, visit: www.ebc.com.
