In a split environment, the Federal Reserve executed the long-anticipated 25 basis point interest rate reduction on Wednesday, lowering the rate from 4 percent to 3.75 percent, with the range now between 3.50 percent and 3.75 percent.
This move indicates that any future rate cuts will hinge on clearer indications regarding the job market’s direction and inflation trends.
The forecast for 2026 remains consistent with the projections made in September concerning a quarter-point cut, while the market continues to maintain an optimistic outlook for two rate cuts.
The anticipated inflation rate is expected to slow to 2.4 percent, with the unemployment rate projected to hover around 4.4 percent by the end of next year.
Given the unresolved tariff issues and the lack of timely or sufficient data to support decisions, the Federal Reserve is likely to welcome continued growth and may be willing to accept slightly elevated inflation levels.
The voting breakdown of 9-3 reflects significant divisions, a rarity, as two members opposed the rate cut while one advocated for a more substantial reduction.
However, by the latter half of 2026, circumstances may shift, especially as Donald Trump and his administration push for a larger rate cut.
It will be interesting to see if the US implements an interest rate cut before Jerome Powell’s tenure comes to an end. The Federal Reserve Chairman has already suggested that a rate cut should not be taken for granted unless there is a significant economic slowdown. The often-volatile dot plot forecasting tool, which tends to fluctuate, currently indicates a single rate cut in 2026.
In another key announcement, the Federal Open Market Committee (FOMC) stated that, as part of its reserve management strategy to enhance market liquidity and monitor interest rates, the Federal Reserve will begin purchasing short-term Treasury bills.
On the economic front, attention this week will again center on the delayed Non-Farm Payroll (NFP) data, set to be released on Tuesday, and the Consumer Price Index (CPI) for November, expected on Thursday.
Given that the ADP report for the private sector indicated a loss of 32,000 jobs compared to a 5,000 gain, the NFP is anticipated to reflect a decrease in employment, and the Fed’s main concern currently lies with the weakening job market.
Meanwhile, both the Bank of England (BOE) and the European Central Bank (ECB) will announce their policy rates on Thursday, with the Bank of Japan (BOJ) making its decision on Friday.
The BOE’s announcement should be particularly noteworthy. In November, the decision to keep rates steady was only achieved after Governor Bailey intervened to support the unchanged policy tilt, resulting in a 5-4 vote. This time, Bailey might reconsider his stance on interest rates.
A combination of a rate cut coupled with a dovish outlook could negatively impact the British currency.
Prior to the policy announcement, a variety of UK data will be released, which will play a crucial role in shaping the future of the UK’s economic landscape.
However, a neutral message from the BOE may enable the GBP to recover somewhat.
Following the BOE’s interest rate announcement, the ECB will be issuing its policy report. As noted in my previous discussions, it is expected to maintain its current rate, given that inflation is within an acceptable range and the growth rate remains robust.
The BOJ’s decision on its policy rate will also be worth watching, especially since Japan has elected a pro-growth leader who holds dovish views, and an interest rate hike is anticipated.
This week, gold has experienced a significant rise as market participants have caught up with recent developments.
In December, gold is likely to trade within a broader range, with potential fluctuations in either direction.
Central banks might hold off on purchases, but the holiday season and reduced liquidity could lead to heightened volatility.
The trend is anticipated to stay the same, with buyers consistently searching for more affordable prices.
A flurry of global economic activity is anticipated this week, and the release of US economic data will keep both foreign exchange and precious metal markets engaged.
WEEKLY OUTLOOK == DEC 15-19
GOLD @ US$ 4301— The market may be in for a rocky week ahead. For gold to reach this year’s new peaks, it needs to break through US$ 4365. A breakthrough past these highs could propel gold up to US$ 4420. Conversely, if it dips below the US$ 4232-35 range, it could lead to a decline towards US$ 4188.
EURO @ 1.1740— Euro has met my target set for last week. For additional gains, it needs to surpass the resistance level of 1.1820 to reach 1.1870. The risk here is that if it cannot go above that, we might see a decline towards 1.1690 or 1.1620.
GBP @ 1.3372— Pound Sterling needs to surpass 1.3450 to hit 1.3490. However, there is a risk for a fall and if it drops below 1.3270, it could face a decline to 1.3210.
JPY @ 155.82— The critical level is 156.50. A breakthrough at this point will encourage a move toward 157.20. However, a decline beneath 154.50 poses a risk of dropping to 153.40.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
Comments
Comments are closed for this article.