Fed’s December Move to Set the Tone for Global Central Banks

The arrival of December has brought a shift in thinking about the Federal Reserve's next move.

sarah

Dec 7, 2025 - 15:37

Fed’s December Move to Set the Tone for Global Central Banks

The arrival of December has shifted thinking about the Federal Reserve's next move.

Just three weeks ago, the market wasn't considering a rate cut in the last month of the year a certainty, as slow economic data and a dovish stance from central bank officials, according to the CME gauge, had reduced the probability of a rate cut to below 50%.

A cut by Christmas?

A few weeks later, talk of a rate cut by Christmas is back in full swing.

Berenberg says the recent rise in the unemployment rate is enough to push Fed officials toward a 25-basis-point rate cut next week. On Friday, Morgan Stanley revised its forecast for a quarter-percentage-point rate cut in December, with the strategist saying, "It seems we were too early." JPMorgan and Bank of America are also forecasting a rate cut based on the recent dovish stance from Fed officials.

When the Fed sneezes...

What impact will this dovish shift have on the international economy? First, the Swiss National Bank will release its policy decision on Thursday. Despite recent weak inflation and GDP growth data, the SNB is expected to keep interest rates at 0.00%.

However, Nomura expects prices and growth to rise in 2026, and said that "the likelihood of a negative policy rate is low." This sentiment is echoed by BNP Paribas, whose economists in a recent note expressed hope that the SNB will keep rates steady until the second half of 2027.

Mixed Signals

The picture is different for the Bank of England. The Monetary Policy Committee is meeting on December 18, and opinions are divided on the next step.

T. Rowe Price believes that a rate cut is likely, expecting further deterioration in the labor market in the coming months, and projects a rate cut of 3% or lower in 2026. However, Berenberg says that the conditions for a rate cut will not be met by the December meeting and will instead occur in the new year.

Bank of England rate-setter Megan Green believed that persistent inflation and labor market dynamics would delay a rate cut for the time being.

Do you expect the ECB to remain as it is and the BOJ to raise rates?

The European Central Bank is also preparing for its final rate-setting meeting of the year. After keeping rates at 2% for the second consecutive meeting in October, Deutsche Bank believes that "rates could remain stable into 2026 due to a slowdown in energy-driven inflation."

Finally, it appears the Bank of Japan may raise rates in December, with multiple reports from Reuters and Bloomberg suggesting the Japanese government will not try to prevent the central bank from raising rates in a few weeks. But this could lead to further volatility, especially in the bond market, where the yield on the 10-year JGB has reached its strongest level since 2007.