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As global markets brace for the upcoming December meeting of the FOMC, sentiment has undergone a sharp transformation: investors now place nearly an 87% probability on a 25-basis-point rate cut a shift reflecting growing confidence in easing monetary policy. What seemed merely possible a few weeks ago has now become widely expected, influencing not just bond markets but equities, commodities, and even cryptocurrencies as risk-on sentiment spreads.
Recent public comments from key policymakers, especially Christopher Waller of the Federal Reserve, have emphasized weakening labor-market indicators and softer economic data, strengthening the dovish case for a rate cut. One official remarked that conditions suggest “reasonable grounds” for lowering rates, pointing to sluggish job growth and moderating price pressures. Meanwhile, with inflation inching closer to the target range and consumer demand showing signs of fatigue, many traders believe the Fed has a narrow window in which to act before year-end.
This shift in expectations is corroborated by data from the CME Group FedWatch tool and trading platforms such as prediction markets. What began as a roughly 50-50 bet has now tilted decisively in favor of easing: probabilities have jumped from roughly 70–75% just a week ago to near 87%. This dramatic reversal underscores both changing economic signals and renewed investor appetite for risk.
The prospect of lower interest rates has already begun to ripple across global financial markets. The U.S. dollar has weakened, sending benchmark yields down and encouraging capital flows into higher-risk assets. Equities are enjoying a surge as cheaper borrowing costs improve corporate earnings prospects and spark renewed optimism. At the same time, safe-haven assets such as gold and silver traditionally sensitive to interest-rate expectations have also been buoyed by the prevailing dovish mood.
For investors, this moment represents a confluence of technical possibility and macro-economic alignment. A rate cut in December is no longer seen as a distant speculation but as a likely policy action that might open the door to renewed growth, higher liquidity, and broader market participation. In theory, it reinforces the role of the Fed as a back-stop during economic slowdowns, offering reassurance that global lenders may enjoy easier financing conditions in the near term.
Yet for all the optimism, some caution remains appropriate. The Fed itself appears divided, with some officials urging prudence given lingering inflation risks. Past months have seen volatility in labor reports and inflation metrics both of which could sway the final decision. The data blackout following recent government shutdowns adds further uncertainty, meaning that even as sentiment tilts bullish, actual policy may still surprise markets.
Still, the near-certainty priced in by markets reflects a broader shift in outlook. What matters most now is the upcoming December 9–10 meeting one where expectations are high and markets are poised for what many hope will be a signal of monetary easing and renewed stability.
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FAQs
Q: Why do markets expect the Fed to cut rates in December 2025?
Markets expect a cut because dovish remarks from Fed officials, along with weak labor-market signals and softer consumer demand, have increased confidence that the central bank will reduce its benchmark rate at the December 9–10 meeting.
Q: What does an 87% probability mean in practical terms for investors?
An 87% probability implies nearly consensus among traders that the Fed will cut rates, leading many to position their portfolios for benefits from lower borrowing costs, renewed liquidity, and risk-on exposure across equities, commodities, and other assets.
Q: Which markets or assets stand to benefit most if the Fed proceeds with a cut?
Lower interest rates tend to favor equities, high-yielding stocks, commodities such as gold and silver, and higher-risk assets including certain emerging-market investments. Cheaper borrowing costs also often support corporate expansion and consumer spending.
Q: Could the Fed decide not to cut rates despite these odds?
Yes. While probability markets suggest a cut, the Fed remains divided internally and may hesitate if new inflation or employment data unexpectedly signals strength. Absence of clarity in forthcoming US macroeconomic data may lead to a hold instead of a cut.
Q: How could this rate-cut decision affect global markets beyond the US?
A rate cut could weaken the US dollar further, boost capital flows into non-US equities and emerging markets, increase demand for commodities priced in dollars, and ease global borrowing costs potentially supporting international growth.