Week Ahead: Fed cuts, pause next?

We get the first big risk event of the final month of the year with the Fed meeting on Wednesday. In fact, there’s a bunch of central bank meeting with the RBA and Bank of Canada also deciding on interest rates. But those two will sit on their hands, unlike the FOMC which is now fully expected to cut rates by a quarter point to 3.5% to 3.75%. The past few weeks have seen money markets yo-yo, with much less chance of a rate reduction when data releases were sparse during the US government shutdown.

More recently since the reopening, what relatively stale economic figures we have seen pointed to a weaker labour market, which is likely to hold more sway over the centrists at the Fed. The final meeting of 2025 also brings with it updated summary of economic projections and a fresh new dot plot. The latter is a quarterly chart that shows the policymakers’ individual projections for the federal funds rate over the next few years. This range of opinions will be interesting in what has been a heavily divided Committee in recent months. Markets currently predict an additional 13bp of cuts by the time of the March meeting and 32bp more cuts by the June FOMC meeting.

Consensus seems to expect one more rate cut signalled in the new year as policy will then be more neutral and inflation still modestly above target.  The lack of timely (inflation) data likely means the hawks especially won’t be too relaxed just yet, even with soft wage growth and lower energy prices. Language by Fed Chair Powell will be a focus, as it always is.  However, we must remember that the voting committee could look very different in the coming months with President Trump keen to shake up the membership, in addition to replacing Jerome Powell as Fed Chair from May. Kevin Hassett, the heavily favoured replacement, is seen as a dove though whether he will be as dovish as some think may be limited by the voting process at the FOMC.

In Brief: major data releases of the week

Tuesday, 9 December 2025

RBA Meeting: The bank is fully expected to remain on hold and keep the cash rate at 3.6%. Inflation and growth data has recently surprised to the upside. The former rose above the 2-3% target range. Many economists say the balance of risks has tilted towards a hike as the next move. Markets see a 28% chance of a move by August 2026. The aussie has surged higher, up ten days in the last eleven. The September high sits at 0.6707.

Wednesday, 10 December 2025

Bank of Canada Meeting: Policymakers will sit on their hands and keep the overnight rate at 2.25%, especially after the blowout November jobs data. Inflation is easing and growth is solid. The chances of a 2026 rate hike doubled to 40% after the labour market report. USD/CAD plunged on Friday through the lower part of the ascending channel from the June lows,  the 200-day SMA at 1.3910 and the late October swing low at 1.3887. A minor Fib level of this year’s high to low is at 1.3834.    

FOMC Meeting: Markets have nailed on a 25bps rate cut giving it an 90%+ chance. Soft job market data is trumping possible tariff-induced inflation in what could again be labelled as an ‘insurance cut’. New forecasts and dot plot will be published with one more cut in 2026 likely. The Dollar Index is sitting just below the 50-day SMA at 99.14.

Thursday, 11 December 2025

Australia GDP: Expectations are for a headline print of 20k, after the prior 42k. Unemployment is forecast to remain at 4.4%. Youth unemployment has moved the data sharply over recent months.

Friday, 12 December 2025

UK GDP: The October monthly print is expected at 0.1% after the negative previous reading. Q3 growth missed expectations as manufacturing output fell sharply, primarily due to Jaguar cyberattack. Cable is trading around the 200-day SMA at 1.3325.

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