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Fed Meeting Minutes: December Rate Cut Decision and Economic Outlook

Minutes from the U.S. Federal Reserve’s December 9–10 meeting showed that the target range for the federal funds rate was lowered by 25 basis points to 3.5%–3.75%, marking the third consecutive rate cut in 2025. The minutes indicated that the labor market continues to soften, with the unemployment rate rising in September and job momentum weakening. Employment growth has slowed compared with the previous period and faces further downside risks. On inflation, core goods prices remain elevated due to the impact of tariffs. While most participants expect these pressures to gradually ease over time, some members cautioned that inflation could prove more persistent than anticipated. The decision to cut rates primarily reflected the Committee’s assessment that risks of labor market deterioration have increased. Many participants noted that maintaining a restrictive policy stance for too long could exacerbate job losses, prompting the decision to further ease monetary policy and move rates closer to a neutral level. At the same time, the continued pass-through of tariffs to final goods prices has supported inflation, leading to differing views among participants on the timing and magnitude of inflation moderation. Some officials even favored pausing rate cuts to wait for additional data. In addition, a government shutdown delayed the release of certain employment, inflation, and growth data, forcing the Committee to make decisions based on outdated information and adding to policy uncertainty. Looking ahead, markets expect the Federal Reserve to pause further rate cuts in the near term and reassess economic conditions in the first quarter before considering additional policy adjustments. Two more rate cuts remain possible around mid-year. Over the medium term, if inflation declines as expected, there may still be room for further rate reductions. However, labor market developments and tariff-related uncertainties are likely to be the key drivers of the policy outlook. Overall, the minutes underscore the Federal Reserve’s strong emphasis on employment stability, while inflation risks continue to warrant close monitoring.

FED Chair Succession Storm: Markets Betting on Powell's Successor?

Federal Reserve Chair Jerome Powell’s term is set to expire in May 2026, and market speculation over his successor has intensified, becoming a key catalyst for heightened financial market volatility. As of December 17, 2025, notable shifts have emerged along the U.S. Treasury yield curve. The 10-year Treasury yield fell 8 basis points from the previous week to 4.22%, marking its lowest level in nearly three months, while the 2-year yield rose 5 basis points to 3.95%, reflecting rising short-term rate expectations and a further deepening of yield curve inversion. Meanwhile, the U.S. Dollar Index (DXY) declined by 1.2% since December 16, recording its largest weekly drop of the year, as investors grew increasingly uneasy about the future direction of monetary policy. In equity markets, the S&P 500 briefly fell as much as 0.8% intraday on December 17, with technology stocks leading losses of more than 1.5%, underscoring the market’s sensitivity to uncertainty surrounding the policy stance of Powell’s potential successor. Overall market volatility has increased by approximately 25% compared with the same period last month. The intensifying succession debate largely stems from public statements following the inauguration of the Trump administration. On December 16, President-elect Donald Trump hinted via social media that he may nominate a more “hawkish” candidate to replace Powell, triggering market anxiety. Potential candidates include former Fed Governor Judy Shelton and Treasury Secretary nominee Scott Bessent, both of whom advocate reducing the Federal Reserve’s independence and accelerating monetary tightening. These expectations have exacerbated selling pressure in the bond market, widening the yield curve inversion to 45 basis points, the largest since November 2025. Economic data have further deepened market divisions. The latest figures show U.S. CPI inflation rising 2.7% year over year in November, up 0.3 percentage points from the prior month. While still above the Fed’s 2% inflation target, the reading came in below some market expectations, lending support to hawkish arguments. At the same time, the unemployment rate remained at 4.1%, while retail sales released on December 16 declined 0.1% month over month, signaling a slowdown in consumer demand. The interaction between political intervention and mixed economic indicators has amplified uncertainty surrounding the future interest rate path. Overall, the Fed chair succession issue has temporarily overtaken traditional macroeconomic data as the dominant driver of market sentiment. In the near term, U.S. equities and the dollar are likely to remain volatile, with the VIX expected to stay above 20. Over the medium term, should Trump successfully advance a hawkish nominee, the federal funds rate may remain in the 5.25% to 5.50% range through the first half of 2026, with an estimated 40% probability of a 25-basis-point rate hike. Conversely, if congressional resistance intensifies, the probability of Powell’s reappointment could rise to 35%, potentially providing support for a rebound in the bond market. Investors are advised to closely monitor the December 18 FOMC meeting minutes and developments in key personnel appointments, while diversifying into gold and short-term U.S. Treasuries as hedges against volatility. Looking ahead to 2026, the outcome of the Fed leadership transition is expected to have a profound impact on global capital flows, with Taiwan’s equity market and the New Taiwan dollar unlikely to remain unaffected.

Dec FOMC Meeting Recap: Quarter-Point Cut, Cautious Outlook Ahead

The Federal Open Market Committee (FOMC) held its meeting on December 9–10, 2025, and decided to lower the federal funds rate target range by 25 basis points to 3.5%–3.75%. This marks the third consecutive rate cut and a cumulative reduction of 100 basis points since the beginning of the year. Economic activity continues to expand at a moderate pace, but job growth has slowed this year, with the unemployment rate rising slightly to 4.5% in September, the highest level in 2025. Inflation has rebounded since early this year and remains elevated, with core PCE rising 2.8% year over year in September, still above the 2% target. Downside risks in the labor market have recently intensified, leading the Committee to judge that the balance of risks between its dual mandate of maximum employment and price stability has deteriorated. This prompted a rate cut to support employment. Persistent inflation pressures are partly linked to bank reserve balances falling to ample levels, prompting the Federal Reserve to restart purchases of short-term Treasury bills at an initial pace of 40 billion dollars per month to maintain adequate reserve supply. Policy decisions remain subject to significant uncertainty, including labor market trends, inflation expectations, and global financial conditions. Three members dissented in this meeting: one favored a larger 50-basis-point cut, while two opposed any rate cut. Along with the release of the final policy decision of the year, the Fed also published the final edition of the Summary of Economic Projections (SEP), which includes officials’ outlook for the economy and interest rates in the coming years. The latest projections show core PCE falling to 3.0% in 2025; GDP growth in 2026 being revised up to 2.3%; the unemployment rate remaining at 4.4%; but the interest rate path showing only one additional rate cut each in 2026 and 2027. The post-meeting statement adopted a slightly more restrictive tone, indicating a higher bar for future policy adjustments and limited room for further easing. In the near term, markets will focus on employment and CPI data to be released on December 16 and 18. The medium-term outlook leans hawkish, with the likelihood of another rate cut before June diminishing, and investors should remain alert to rising uncertainty risks.

US Fed December Meeting: Rate Cut Expectations and Policy Pivot

The outcome of the Federal Reserve’s December policy meeting will be announced in the early hours of the 11th Taipei time. The market broadly expects another 25 basis-point rate cut, bringing the policy rate to the 3.50 to 3.75 percent range. Signals of an economic slowdown have become increasingly clear, yet inflation has not returned to target, prompting policymakers to proceed cautiously. This meeting will update the Summary of Economic Projections to reinforce policy continuity for the coming year, while Chair Powell’s remarks will give investors insight into the data-dependent approach guiding future actions. The recent cooling in the labor market, including slower job growth and a slight rise in the unemployment rate, provides room for continued rate cuts. However, the slow pace of disinflation keeps some officials alert to upside risks, resulting in internal differences of opinion. The conclusion of quantitative tightening earlier this month has tightened liquidity in the financial system, and the Federal Reserve is evaluating whether to introduce new asset-purchase tools to stabilize short-term interest rates. Externally, global economic uncertainties and the policy direction of the new U.S. administration add complexity to the outlook, pushing the policy path toward a more gradual adjustment. Overall, the probability of a December rate cut is high, but the Federal Reserve is expected to use its statement and dot plot to signal limited room for easing next year, likely only one or two more cuts. In the short term, improved risk sentiment may boost U.S. equities and bonds, though capital flows will still depend on the design of any balance-sheet expansion and the broader liquidity environment. In the medium term, if inflation or employment data become volatile again, the risk of a policy reversal will increase, making a diversified allocation strategy advisable. The results of this meeting will set the tone for the monetary environment heading into 2026, maintaining a cautiously optimistic overall stance.

US Cuts Tariffs on South Korea

The United States recently confirmed it will lower tariffs on South Korean imports from 25 percent to 15 percent, retroactive to November 1, 2025. This move significantly reduces the burden on major Korean export items such as automobiles and aircraft components. Overall industry costs are expected to decline by about 10 percent compared with the previous month, while easing the market uncertainty caused by the earlier high tariffs. Automakers like Hyundai and Kia are expected to benefit the most, potentially saving billions of dollars in tariff payments starting in November and setting a new record low tariff level since the bilateral trade agreement took effect. On South Korea’s side, the National Assembly passed a bill on November 26 to fulfill its 350 billion dollar strategic investment commitment to the United States, meeting the requirements outlined in the U.S. memorandum and prompting the U.S. Department of Commerce to finalize the tariff reduction. This investment framework originated from the summit between South Korean President Lee Jae Myung and U.S. President Trump on October 29, where the two sides reached an “investment-for-tariffs” agreement, including 200 billion dollars in cash investments and a 150 billion dollar shipbuilding cooperation project. The Trump administration is promoting this approach to strengthen U.S. industrial interests, while South Korea is moving quickly through legislation to prevent its electronics and automotive sectors from continuing to face a 25 percent tariff burden. In the short term, the tariff reduction is expected to support growth in Korean exports to the U.S., with automobile sales in the first quarter of 2026 projected to rise more than 5 percent year over year, helping revive the supply chain. In the midterm, the U.S.–Korea trade framework may expand to more product categories. South Korea will need to continue meeting its investment commitments to maintain the reciprocal 15 percent tariff rate, the same level granted to Japan and the European Union, and reduce risks in future negotiations. While the overall market outlook is generally positive, global trade conditions remain uncertain under Trump’s policies. South Korean companies will need to strengthen domestic production strategies to better withstand volatility.