Market Commentary - What's Next with the Fed?

As we close out 2025, one of the more remarkable events of the year (at least in financial circles) has been the newsworthy prominence of the normally quiet Federal Reserve Board of Directors. 

From anticipated rate cuts, to robust internal policy debates about the size and frequency of those cuts, to President Trump’s appointments to the Fed Board, to allegations of financial impropriety by Fed Board members, 2025 has been a year unlike many others.

So, what does the Fed’s last rate cut on December 10 mean for investors, borrowers, lenders and consumers?  Let’s do a quick rundown of last week’s Fed meeting and its importance and expected impact.

What Did the Fed Do?

• The Fed cut rates by 0.25%, bringing the federal funds range to 3.5%–3.75%. This is the third straight cut this year, and the vote was anything but unanimous: three officials dissented, which is rare and signals real division inside the Fed. 
• The Fed’s official statement following the meeting now sounds more cautious about future cuts, reverting to language last used before a previous pause. In short: the Fed is in “wait and see” mode.

What Were the Expectations for the Fed meeting?

• Heading into the meeting, markets and most analysts expected a cut, especially after New York Fed President John Williams signaled support in late November for a rate cut. Williams’ comments were a turning point, flipping market odds for a December cut from 40% to 70% overnight. 
• The Fed’s new projections show just one rate cut in 2026 and one in 2027, but the Committee is split: seven officials want to hold rates steady all next year, while eight support at least two cuts.

Key Fed Speakers’ Comments

• Chair Jerome Powell: Powell emphasized the Fed’s dual mandate: maximum employment and stable prices. He acknowledged that inflation is still above target, but the labor market is cooling. Powell made it clear that further rate hikes aren’t on the table right now, and the Fed is “well positioned to wait and see how the economy evolves.” He also pointed out that tariffs are a major driver of inflation, but expects this to be a one-time price increase, not a persistent or recurring problem. 
• John Williams (New York Fed): Williams’ “near term” rate cut comments were pivotal for market expectations. He sees room for further adjustment to support the labor market, even as inflation remains above target. His remarks were interpreted as reflecting core Fed thinking, not just a personal view. 
• Austan Goolsbee (Chicago Fed): Goolsbee dissented, preferring to keep rates unchanged. He’s concerned that inflation is still too high and wants to see more convincing evidence of a sustained decline before supporting further cuts. 
• Jeff Schmid (Kansas City Fed): Schmid also dissented, arguing that more cuts could entrench inflation rather than help the labor market. He’s been vocal about the risks of easing too quickly. 
• Stephen Miran (Fed Governor): Miran was the third dissenter but, instead of arguing to wait to make a cut, Miran wanted a larger, half-point cut, citing labor market weakness. This was his third consecutive dissent for a bigger move. 

Market Reaction

• The S&P 500 rose, Treasury yields and the dollar declined.  
• Markets had largely priced in the cut, so the reaction was positive but not dramatic. 
• Rate-sensitive sectors like real estate and financials saw some momentum. 

What Do Three Dissents Mean?

• The three dissents—two for no cut, one for a bigger cut—highlight deep divisions over whether inflation or employment is the bigger risk. This is the most split the Fed has been in years, and it means future policy moves may be less predictable. 
• Powell called it a “healthy debate,” but it does add uncertainty for markets and for us as investors and fiduciaries.

Looking Ahead to 2026

• The Fed’s cautious tone and split committee suggest a “wait and see” approach for 2026. Further cuts will depend on incoming data, especially on inflation and jobs.
• Political developments, including the upcoming nomination of a new Fed chair, could also influence the path forward.

Fed Day unfolded largely as expected, but we remain cautious about market returns heading into 2026. On the positive side, tax cuts and robust earnings growth expectations offer support for equities. However, elevated valuations (in some sectors), policy uncertainty, continued dollar weakness, stubbornly high(er) inflation, and concerns about an AI-driven bubble temper our outlook. 

Please reach out with any questions you may have and thank you for your continued confidence in our team. It is our pleasure to share life’s journey with you.