Global Markets Brace for Fed’s December Rate Move

As the final stretch of 2025 begins, global markets around the world are turning their focus to one pivotal moment: the Federal Reserve’s December policy decision. What was once a closely contested call has now evolved into what many economists consider the most consequential rate decision of the year, setting the tone for central banks across Europe and Asia as they prepare for their own final meetings.

A shift in sentiment has taken shape across markets in recent weeks. Traders who once assigned less than a 50% probability to a December rate cut now overwhelmingly predict that the Fed will move to reduce interest rates by 25 basis points. The change comes after a steady stream of softening labor market data, dovish comments from key policymakers and rising expectations that the central bank’s aggressive tightening cycle has finally run its course.

Fed Expected to Lead with a December Rate Cut as Labor Market Softens

Just three weeks earlier, investors were unsure whether the Federal Reserve would be comfortable delivering a “Christmas cut.” Economic statistics had demonstrated intractable inflation and vigorous expenditure, and there were still policymakers who believed that the battle against the escalating costs had not ended yet. That story changed swiftly once the figures of unemployment in November recorded a tangible increase, which gives credit to the point that the Fed has already narrowed the conditions enough to justify a pivot.

Major banks have now adjusted their calls accordingly. Morgan Stanley reversed its earlier prediction, stating it “jumped the gun” on expecting a hold. JPMorgan and Bank of America also project a quarter-point cut, citing both moderating inflation pressures and the Fed’s own recent tone. Berenberg, which has remained consistently cautious, believes the rise in the unemployment rate alone may be sufficient to sway officials toward easing.

The expected cut comes at a time when markets are eager for clarity. With 2026 viewed as a potential transition year marked by slower global growth, investors are looking for signals that monetary policy will begin shifting from restriction to support. The upcoming December 10 meeting is therefore likely to set the direction not only for the U.S. economy but also for global central banks that continue to shadow the Fed.

Swiss National Bank Poised to Hold Rates Despite Soft Data

The first major central bank to come after the Fed will be the Swiss National Bank, as the policy decision will be made on Thursday. The forecasts heavily lean towards maintaining the current rate of 0.00 by the SNB. Although recent inflation and GDP figures in Switzerland have been lower than expected, analysts are of the opinion that the central bank will continue to be on guard.

Nomura projects that both inflation and growth will pick up slightly in 2026, which would make it difficult for the SNB to justify returning to negative rates. “The bar to a negative policy rate is high,” the firm said, noting that Switzerland remains more concerned about long-term price stability than short-term dips. BNP Paribas expressed similar views, suggesting the SNB is unlikely to begin easing until the second half of 2027.

Mixed Signals for the Bank of England as Inflation Proves Stubborn

The Bank of England has a much more complicated background. The next meeting of the Monetary Policy Committee is on December 18, yet economists disagree on what the next action of the central bank will be. The economy of the U.K. is still struggling with long-term inflation and a weak labor market, and when to cut is a topic that has attracted a lot of debate.

Rowe Price is convinced the BOE will probably lower the rates by claiming that the labor global markets are going to become weaker in the next few months. The firm forecasts that policy rates could fall to 3% or lower in 2026. Other analysts, however, caution that the BOE has not yet seen sufficient progress on inflation to justify immediate action. Berenberg notes that the conditions for a cut may not be met before the end of the year and anticipates the first move coming early in 2026 instead.

Adding further uncertainty is the BOE’s own messaging. Megan Greene, a member of the Monetary Policy Committee, informed CNBC that intractable inflation and the dynamic of the labor market will put off any reductions. Her comments highlight an increasing belief within the bank that such premature easing would turn the gains achieved up to 2025 back.

The December ruling will thus become a pointer of great importance to how the BOE will manage the two-pronged problem of economic slackness and price pressures.

European Central Bank Expected to Stay the Course

The European Central Bank faces similar circumstances but appears more unified in its approach. The ECB meets on the same day as the BOE, and economists widely predict that it will keep rates unchanged at 2%. After maintaining that level for two consecutive meetings, the central bank now appears committed to holding steady as it navigates what Deutsche Bank describes as an “energy-induced inflation undershoot” expected in 2026.

The ECB has emphasized time and again that it is being patient in the course of the year 2025 it may result in undermining its efforts for long term price stability. As the energy markets remain volatile and the growth in wages is not similar in the euro area, policymakers will focus on consistency over quick adjustment.

In the case of the eurozone, the December 18 meeting could provide more information on the ECB’s long-term strategy rather than immediate action. As inflation projections of 2026 are wide-ranging, authorities are likely to strengthen their risky stance.

A Defining Month for Global Monetary Policy

December is turning out to be one of the most significant months in the international financial market in decades. As the Federal Reserve predicts a rate cut, the Swiss National Bank contemplates its next action, the Bank of England considers its next action, the ECB remains wary, and the Bank of Japan plans its own increase, the three biggest economies of the world are drifting apart on meaningful grounds.

Each decision will ripple across global markets, influencing currency movements, bond yields, investor sentiment and economic forecasts for 2026. As central banks navigate the final policy decisions of the year, the world will be watching closely to see how they respond to a rapidly shifting economic landscape — and how their choices shape the next chapter of global monetary strategy.