On December 11, 2025, at 3 a.m., the Federal Reserve will launch its annual 'final battle'—announcing the December interest rate decision. This meeting not only concerns the direction of monetary policy for this year but will also directly affect liquidity expectations in the global capital markets for 2026. The market generally expects the Federal Reserve to cut interest rates by 25 basis points, but behind this 'hawkish rate cut' lies a sharp divergence in policy paths and a deep game of economic data.
A rate cut of 25 basis points has almost become a certainty, but internal rifts are intensifying.
According to the CME FedWatch Tool, as of December 10, the market's probability expectation for a 25 basis point rate cut in December is as high as 86.2%, almost 'set in stone.' However, there is a rare division within the Federal Reserve:
Hawkish camp: Boston Fed President Collins, Kansas City Fed President George, and other officials have publicly opposed rate cuts multiple times, citing that the current inflation rate is still above the 2% target (September PCE price index year-on-year increase of 2.8%), and that while the labor market is weak, it has not collapsed.
Dovish camp: New York Fed President Williams clearly stated in November that 'there is still room for rate cuts in the short term,' and analysts at the Chicago Mercantile Exchange even predict that the Fed may limit future rate cuts by modifying its post-meeting statement.
Trump's pressure: President Trump directly urged Fed Chairman Powell to 'cut rates immediately' and threatened to use 'support for significant rate cuts' as a litmus test for selecting the new chair. The leading candidate for the next chair, White House economic advisor Hassett, echoed that 'the Fed has ample room for rate cuts.'
The focus of this divergence lies in how the Fed balances 'preemptive rate cuts' and 'policy flexibility.' Chief economist Lu Zhe of Dongwu Securities pointed out: 'The current market's full pricing of the December rate cut has exhausted the positives, and we need to be wary of the hawkish downside risks posed by the number of dissenting votes, the dot plot guidance, and Powell's tone in the decision.'
2026 policy path: Will the rate cut channel open or abruptly stop?
Although the December rate cut is almost certain, the policy direction in 2026 is filled with uncertainties. There is a significant divergence between mainstream market expectations and the Fed's official guidance:
Market optimists: Morgan Stanley predicts that the Fed will cut rates by 25 basis points in January and April 2026, with a final target rate range of 3%-3.25%; Barclays believes that the Fed will cut rates by 25 basis points in March and June 2026, but the post-meeting statement may imply a 'pause in rate cuts in January next year.'
The cautious camp of the Fed: According to the September dot plot, Fed officials' median forecast for the federal funds target rate at the end of 2026 is 3.25%-3.5%, implying only 25 basis points of rate cut space, far below the market's mainstream expectation of 3%-3.25%.
Data dependency: Former Federal Reserve senior economist Hu Jie emphasized that the policy path in 2026 will heavily depend on the evolution of economic data, especially the balance of the 'dual mandate' of inflation and employment. If economic data does not significantly deteriorate, the Fed may maintain a cautious pace of 'meeting-by-meeting assessment' rather than shifting to aggressive easing.
The economic truth behind rate cuts: The suppressive effects of high interest rates are becoming apparent.
The urgency of Fed rate cuts stems from the continued suppression of the U.S. economy by high interest rates:
Consumer spending stagnates: In September, U.S. consumers' real disposable income showed almost zero growth for two consecutive months, and spending on goods saw its largest decline since May, with consumption of durable goods such as automobiles and clothing declining across the board.
Job market weakens: Before the government shutdown in October, the U.S. unemployment rate had risen to 4.4%, and non-farm payroll data is weak, with the manufacturing PMI shrinking for nine consecutive months.
Inflation remains sticky: Despite an overall slowdown in inflation, core service prices (such as rent and healthcare) remain high, and supply-side factors like tariffs further push up costs.
Dong Zhongyun, chief economist at China Aviation Securities, warned: 'The U.S. economy is entering a new phase of slowing labor market and inflation pressure coexisting, and the Fed needs to walk a tightrope between supporting growth and suppressing inflation. If economic or inflation risks worsen in 2026, the space for rate cuts may quickly narrow.'
Global market reaction: Silver reaches an all-time high, the celebration of risk assets may be fleeting.
Expectations of Fed rate cuts have triggered severe volatility in global markets:
Silver prices soar: Driven by expectations of rate cuts, imbalances in physical supply and demand, and influxes of capital, spot silver prices broke through $60 per ounce during intraday trading on December 9, with a year-to-date increase of over 100%. UBS even raised its 2026 silver price target to $65 per ounce.
U.S. stocks face increasing volatility: Although expectations of rate cuts support risk appetite, hawkish signals may lead to a repricing in the market. On December 8, the three major U.S. stock indices collectively fell, with the Dow down 0.54%, the S&P 500 down 0.61%, and the NASDAQ down 0.72%.
Hidden currents in the bond market: If the Fed signals a 'pause in rate cuts,' U.S. Treasury yields may rebound, compressing the valuation space for risk assets.
Conclusion: Rate cuts are not the end but the beginning of a new game.
The Fed's 25 basis point rate cut in December was expected, but this 'hawkish rate cut' resembles a carefully designed policy signal — soothing market concerns about economic slowdown while leaving room for future policy shifts. In 2026, with a new chair taking office, the evolution of economic data, and changes in the global political landscape, the Fed's monetary policy will face more complex challenges. For investors, rather than betting on the number of rate cuts, it is better to closely monitor the 'triple variables' of inflation, employment, and internal disagreements within the Fed to seize opportunities in this global capital market game.