Federal Reserve Chair Jerome Powell speaks during a press conference following the Federal Open Markets Committee meeting at the Federal Reserve on Dec. 10, 2025 in Washington, DC.
Chip Somodevilla | Getty Images
The Federal Reserve delivered what market participants had been calling a “hawkish cut” at its December meeting, trimming the policy rate by a quarter‑percentage point. While the move was broadly anticipated, the nuanced tone of the statement and the underlying policy mechanics offered investors a few hidden positives amid an otherwise cautious outlook.
Two regional bank presidents—Jeffrey Schmid of the Kansas City Fed and Austan Goolsbee of the Chicago Fed—advocated for a pause on further easing. Their restraint was reflected in the Fed’s “dot plot,” which now projects a single rate reduction in 2026 followed by another in 2027, signaling a slower path to policy normalization than many had hoped.
Interestingly, the Fed’s rate statement was largely recycled from the December 2024 meeting, a period that saw a nine‑month hiatus on cuts until September 2025. The decision to reuse language underscored the committee’s desire to keep expectations anchored while still delivering a marginal relief.
Why the markets rallied
The most market‑moving surprise came from the Fed’s balance‑sheet strategy. Starting Friday, the central bank announced a program to purchase $40 billion of Treasury bills each month. By injecting fresh liquidity directly into the short‑term government market, the Fed is effectively creating a “stealth” easing that helps sustain demand for risk assets without overtly lowering rates further.
Chair Jerome Powell also sought to dampen speculation about a near‑term rate hike. “I don’t think that a rate hike … is anybody’s base case at this point. I’m not hearing that,” he said, reinforcing the perception that the tightening cycle is likely over for the year.
On the growth front, Fed officials raised their 2026 GDP forecast to 2.3 % from 1.8 % in September, citing “extraordinary” resilience in consumer spending, labor market tightness, and corporate earnings. Powell echoed the sentiment: “We have an extraordinary economy.”
From a technical standpoint, the combination of a modest rate reduction, aggressive Treasury bill purchases, and upbeat growth projections has reduced the term premium on medium‑term Treasuries, lowered corporate borrowing costs, and buoyed equity valuations. Technology giants, which had been trading at a discount due to rate‑sensitivity concerns, saw spreads narrow, while high‑yield issuers benefited from the improved risk appetite.
Analysts now anticipate a “Santa Claus rally” to close out 2025. José Torres, senior economist at Interactive Brokers, noted that the final rate decision “has essentially paved the way for the S&P 500 to breach the 7,000 mark in the coming weeks.” If realized, the rally would deliver a seasonal boost to portfolios that have weathered a volatile year.
What you need to know today
– The Fed’s $40 billion monthly Treasury bill program is expected to keep short‑term yields anchored, supporting equity markets and corporate debt issuance.
– Forward guidance points to only two additional rate cuts before 2027, suggesting a relatively tight policy stance for the next 18‑24 months.
– Inflation remains above the Fed’s 2 % target, but the latest data show a slowdown in core price pressures, giving the committee room to balance growth and price stability.
– Investors should watch the yield curve for signs of inversion, which could presage a shift in monetary policy or a re‑assessment of growth expectations.
Anduril flies its unmanned drone YFQ‑44A for the first time at an unspecified location in California, U.S., Oct. 31, 2025 in this handout image.
Anduril | Via Reuters
AI‑driven defense technologies are gaining traction across Europe as NATO members commit to raise defense spending to 5 % of GDP. The influx of capital has sparked a wave of venture funding, with $4.3 billion funneled into European defense startups since 2022—almost four times the amount invested in the preceding four years. This surge is reshaping the competitive landscape, encouraging legacy contractors to partner with, or acquire, agile AI firms that can deliver next‑generation autonomous systems, cybersecurity solutions, and data‑analytics platforms.
For investors, the convergence of higher defense budgets and rapid AI adoption opens new avenues for growth. Companies that can integrate AI into weapons platforms, logistics, and battlefield decision‑making stand to capture sizable contracts from both the U.S. and European allies. The sector’s valuation outlook remains attractive, especially as public‑private partnerships accelerate product development cycles and bring advanced capabilities to market faster than traditional procurement processes.
Original article, Author: Tobias. If you wish to reprint this article, please indicate the source:https://aicnbc.com/14379.html
