10.12.25 - Fed decision day
Investors and market watchers await curiously the Federal Reserve’s final monetary policy decision of the year, due later today. The Fed is now widely expected to deliver a third consecutive 25bp rate cut, bringing the policy rate to 3.75%.
While the cut itself appears largely priced in, the real uncertainty lies in what comes next in 2026. Persistent inflation pressures have deepened divisions within the Federal Open Market Committee, making it difficult for Chair Jerome Powell to clearly signal the future rate path. With Powell’s term ending in May and Kevin Hassett, former director of Donald Trump’s National Economic Council, seen as a frontrunner to succeed him, markets are increasingly aware that policy continuity is no longer guaranteed.
Adding to the uncertainty: missing or lagged inflation data has left the Fed operating with limited visibility, effectively flying blind into year-end.
Markets: wider nervousness
Bonds: yields rising — US 10-year at touching 4.21%
Equities: broadly lower led by big techs
Gold: profit taking slipping below USD 4’200/oz
USD: down
Cryptos: stabilizing after recent gains — Bitcoin over USD 92k
Volatility: VIX edges higher for a thir consecutive day
My View: It is rather unusual to see such wide fluctuations in market expectations around an imminent rate decision. Within a matter of days, markets moved from firmly pricing a rate cut, to discounting no cut after stronger job-market data, only to swing back again toward a cut later in the week.
This volatility reflects deeper uncertainty in combination with short-term view rather than conviction.
Over the past several sessions, an important divergence emerged. Bond investors began to express doubt about the sustainability of rate cuts, pushing yields meaningfully higher. At the same time, equity investors remained optimistic, positioning for both today’s cut and additional easing ahead.
That disconnect matters.
If Chair Powell fails tonight to clearly acknowledge the possibility of further rate cuts, or adopts a more cautious, wait-and-see tone, markets could react sharply. In this environment, reassurance is more important than the cut itself.
The risk is not what the Fed does today, but what it refuses to promise tomorrow.
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