A construction workers paints an eagle on the Marriner S. Eccles Federal Reserve Board Building, the main offices of the Board of Governors of the Federal Reserve System, on Sept. 16, 2025 in Washington, DC.
Kevin Dietsch | Getty Images
A Christmas cut?
Fast forward a few weeks, and a Christmas cut is very much back on the table.
Berenberg cites the recent uptick in the unemployment rate as being enough to tip Fed officials towards a 25-basis-point rate reduction next week. On Friday, Morgan Stanley reversed its December call to a quarter-percentage point cut, with strategists saying “it seems we jumped the gun.” JPMorgan and Bank of America are also forecasting a cut based on more recent dovishness from Fed officials.
When the Fed sneezes…
So how will this dovish shift play out internationally? First up, the Swiss National Bank releases its policy decision on Thursday. The overwhelming expectation is for the SNB to hold interest rates at 0.00% despite recent inflation and GDP growth readings coming in weaker.
However, Nomura expects prices and growth to increase in 2026, adding “the bar to a negative policy rate is high.” This sentiment is echoed by BNP Paribas, with economists in a recent note expecting the SNB to stay on hold until the second half of 2027.
Mixed messages
The picture is different for the Bank of England. The Monetary Policy Committee meets on Dec. 18, and opinion is split on the next move.
T. Rowe Price believes a rate cut is likely, predicting further labor market deteriorations over the coming months, forecasting rates to go down to 3% of lower in 2026. However, Berenberg says the conditions for a cut won’t be met in time for the December meeting, and will instead come in the new year.
Speaking to CNBC, Bank of England rate setter Megan Greene thought stubborn inflation and labor market dynamics would delay rate cuts for now.
ECB seen staying the course, BOJ to hike?
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 back in October, Deutsche Bank believes “rates are likely to be kept on hold through the energy-induced inflation undershoot in 2026.”
Finally, it seems December could bring a hike from the Bank of Japan, with multiple reports from Reuters and Bloomberg suggesting the Japanese government will not try and prevent the central bank from raising rates in a couple of weeks. But this could create more volatility, particularly in the bond market, where yields on 10-year JGBs have surged to their strongest level since 2007.
Central bank events in December:
December 10: Federal Reserve policy decision
December 11: Swiss National Bank policy decision
December 18: Bank of England policy decision
December 18: European Central Bank policy decision
December 19: Bank of Japan policy decision