FOMC: Maintaining Optionality

WELLS FARGO

Forex

Political

Economic

Summary:

As expected, the FOMC reduced the fed funds target range by 25 bps to 3.50%-3.75% and signaled that additional easing will face a higher bar at its next meeting on January 28.

Summary

· As expected, the FOMC reduced the fed funds target range by 25 bps to 3.50%-3.75% and signaled that additional easing will face a higher bar at its next meeting on January 28.

· The post meeting statement signaled this higher bar to future cuts by noting it was now considering the "extent and timing" of additional adjustments. The suggestion that the FOMC would not be so ready to cut the policy rate again in the near term likely helped to limit the number of hawkish dissents to two (Presidents Goolsbee and Schmid). Governor Miran again dissented in favor of a 50 bps cut.

· Despite two hawkish dissents and the dot plot revealing four other regional bank presidents preferred to hold the policy rate steady today, the Committee maintains an easing bias. The updated Summary of Economic Projections showed the median estimate for the policy rate at the end of next year to be 3.375%, unchanged from September.

· The expectation among most members to ease next year reflects projections for the unemployment rate to be a touch above most participants' estimate for full employment next year, while inflation resumes its progress back toward—albeit not all the way to—the FOMC's 2% target. The Q4-2026 median projection for the unemployment rate was unchanged at 4.4%, while the median estimate for headline and core PCE inflation ticked down to 2.4% and 2.5%, respectively. More noticeable was the median estimate for GDP growth next year rising half a percentage point to 2.3% on a Q4/Q4 basis, putting it closer to our above-consensus estimate of 2.5%.

· There is a slew of economic data between now and the next meeting on January 28, and we will be monitoring it closely and adjusting our forecast as conditions warrant. Our base case remains that the current easing cycle is not over yet but rather that it is entering a slower phase. We continue to look for two more 25 bps cuts from the FOMC next year at the March and June meetings.

· The Federal Reserve also announced the beginning of reserve management purchases (RMPs) in an effort to maintain short-term interest rate control, keep bank reserves ample and ensure the smooth functioning of financial markets. Fed officials have been clear for months that this step in no way represents a change in the stance of monetary policy. We agree with this assessment, and the beginning of RMPs will have no bearing on our view of the stance of monetary policy.

A Cut to Close out the Year

As expected, the FOMC reduced the fed funds target range by 25 bps to 3.50%-3.75% at the conclusion of its December meeting. As was also anticipated, the decision was not unanimous. Three voting members did not support the policy decision, with dissents registered in both a more hawkish and dovish direction. Specifically, Governor Miran dissented in favor of a steeper, 50 bps cut, while Presidents Schmid (Kansas City) and Goolsbee (Chicago) dissented in favor in keeping the policy rate unchanged.

The dispersed views on the best course of action reflect the tricky environment the FOMC finds itself in. The FOMC did not have several key readings on the economy as originally scheduled due to the government shutdown (e.g., Q3 GDP, Oct. & Nov. Employment Situation and CPI, etc.). But, the latest data available continue to indicate some tension in the Committee's employment and inflation mandates (Figures 1 & 2).

With 75 bps of cuts since September and policy not as clearly restrictive, the bar for additional easing has been raised. In the post meeting statement, the Committee gave itself more optionality around future cuts, saying that "In considering the extent and timing of additional adjustments to the target range…", with the emphasized text new to the statement. The suggestion that the FOMC will not be so ready to cut rates again in the near term likely helped to limit the number of hawkish dissents.

The Summary of Economic Projections did signal some broader unease among the Committee besides the two hawkish dissents. The dot plot revealed that six participants in total did not favor reducing the policy rate at today's meeting, implying four non-voting regional presidents also preferred to hold the policy rate steady. Nonetheless, a bias toward further easing persists among the Committee. The median dot for year-end 2026 and 2027 remained at 3.375% and 3.125%, respectively. The longer-run median was unchanged at 3.00%, with the dot plot illustrating that all but two participants see the current policy rate at least somewhat restrictive.

The biggest change to the SEP was a major upward revision to the 2026 growth outlook, with the median projection rising from 1.8% to 2.3%. Some of this change likely reflects the government shutdown, with Q4-2025 real GDP growth expected to see a material drag, setting the economy up for a bounce-back in Q4-2026. That said, this dynamic cannot fully explain the change, and it puts the median FOMC participant closer to our above-consensus forecast of 2.5% real GDP growth next year. Elsewhere, the changes generally were smaller, with some modest downward revisions to the inflation forecasts next year, and no change to the median longer run projections for the real GDP growth and the unemployment rate.

The Federal Reserve also announced that it will begin growing its balance sheet again in the coming days through the purchase of Treasury bills. As we have discussed previously, these purchases are meant to maintain short-term interest rate control, keep bank reserves ample and ensure the smooth functioning of financial markets. Fed officials have been clear for months that this step in no way represents a change in the stance of monetary policy. We agree with this assessment, and the beginning of reserve management purchases (RMPs) will have no bearing on our view of the stance of monetary policy.

Specifically, the central bank announced that RMPs will begin on December 12 with an initial pace of $40 billion for the month. The post-meeting guidance stated that "the pace of RMPs will remain elevated for a few months to offset expected large increases in non-reserve liabilities in April. After that, the pace of total purchases will likely be significantly reduced in line with expected seasonal patterns in Federal Reserve liabilities." Our working assumption has been that the medium term, "equilibrium" pace of RMPs will be $25 billion per month to keep bank reserves ample. We read the above guidance as indicating that RMPs will downshift to roughly this pace starting in the spring. If realized, the Fed's balance sheet will grow by roughly $370 billion in 2026, and the reserve-to-GDP ratio will be 9.7% at the end of next year, comfortably above the lows in September 2019 when repo markets blew up (Figure 6).

Our base case remains that the current easing cycle is not over yet but rather that it is entering a slower phase. While the labor market is far from collapsing, the softening in conditions to the wrong side of "maximum employment" supports policy returning to a more neutral position. Directional progress on inflation next year should resume as the initial lift from tariffs fade, which would reduce the tension between the FOMC's employment and inflation mandate. We continue to look for two 25 bps rate cuts next year at the March and June meetings. Next week's economic data, specifically the "one and a half" employment report on Tuesday and the November CPI on Thursday, will be key to the outlook. We will have reports out previewing these data releases in the coming days.

Source: Wells Fargo Securities

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Commodity

Economic

Oil prices were broadly stable on Thursday as investors shifted their focus back to Russia-Ukraine peace talks while watching for any fallout from a U.S. seizure of a sanctioned tanker off the coast of Venezuela.

Brent crude futures dipped 5 cents, or 0.08%, to $62.16 a barrel at 0400 GMT, while U.S. West Texas Intermediate crude was down 1 cent, or 0.02%, at $58.45 a barrel.

The benchmarks settled higher a day earlier after the U.S. said it seized an oil tanker off the coast of Venezuela, as escalating tensions between the two countries raised concerns about supply disruptions.

"So far, the seizure has not trickled down to the market, but further escalation will impose heavy crude price volatility," said Emril Jamil, a senior oil analyst at LSEG.

"The market remains in limbo, eyeing the Russian-Ukraine peace deal progress."

On Wednesday, U.S. President Donald Trump said "we've just seized a tanker on the coast of Venezuela, large tanker, very large, largest one ever, actually, and other things are happening."

Trump administration officials did not name the vessel. British maritime risk management group Vanguard said the tanker, Skipper, was believed to have been seized off Venezuela.

Traders and industry sources said Asian buyers are demanding steep discounts on Venezuelan crude, pressured by a surge of sanctioned oil from Russia and Iran and heightened loading risks in the South American country as the U.S. boosts its military presence in the Caribbean.

Investors were more focused on developments in Russia-Ukraine peace talks. The leaders of Britain, France and Germany held a call with Trump to discuss Washington's latest peace efforts to end the war in Ukraine, in what they said was a "critical moment" in the process.

Reports of Ukraine striking a vessel from Russia's shadow fleet lent support to prices for now, IG market analyst Tony Sycamore said in a note.

"These developments are likely to keep crude oil above our key $55 support level into year-end, barring an unexpected peace deal in Ukraine," Sycamore said.

In other news, a sharply divided Federal Reserve reduced its benchmark interest rate. Lower rates can reduce consumer borrowing costs and boost economic growth and oil demand.

Meanwhile, a drawdown in U.S. crude inventories also lent support to prices even though the drop was milder than expected.

Crude inventories fell by 1.8 million barrels to 425.7 million barrels in the week ended December 5, the Energy Information Administration said in its weekly Petroleum Status Report, compared with analysts' expectations in a Reuters poll for a draw of 2.3 million barrels.

Source: Reuters

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Economic

Fed Resumes Balance Sheet Expansion to Ease Liquidity Pressures

In a strategic reversal of its previous quantitative tightening stance, the U.S. Federal Reserve announced it will begin purchasing $40 billion in Treasury bills starting December 12. This move marks the central bank’s return to active balance sheet expansion, aimed at restoring smoother liquidity conditions in short-term funding markets, particularly the overnight repo market.

This policy action comes amid concerns that years of balance sheet runoff had over-tightened monetary conditions. By injecting liquidity through short-dated government bond purchases, the Fed aims to reinforce its control over benchmark rates and avoid dislocations in money markets, which have faced growing strain despite the formal conclusion of quantitative tightening earlier this month.

Repo Market Strains Reflect Tight Liquidity Environment

The overnight repurchase agreement (repo) market a $4 trillion corner of the financial system where banks and funds borrow cash against Treasury collateral has seen repeated rate surges in recent weeks. These spikes, with repo rates at times exceeding the Fed’s target rate, are clear signs of constrained liquidity. The Secured Overnight Financing Rate (SOFR), which tracks cost of repo borrowing, has become an indicator of these pressures.

Analysts attribute the liquidity squeeze to several interacting forces. First, a sharp increase in Treasury bill issuance expanded the supply of collateral needing funding. Simultaneously, a recent U.S. government shutdown led to the accumulation of large balances in the Treasury General Account (TGA), effectively withdrawing reserves from the banking system and limiting cash available for repo transactions.

This cause-and-effect chain from government fiscal operations to liquidity withdrawal and repo rate volatility underscores the fragility of current market dynamics and the urgency behind the Fed’s action.

Market Reaction and Strategic Implications

The Fed’s decision is seen by analysts as a proactive measure to mitigate year-end funding pressures, a period historically characterized by short-lived volatility in short-term lending markets. According to Stephen Douglass of NISA Investment Advisors, the move was necessary because repo trading had remained persistently above the Fed’s administered policy rates, even after QT officially ended on December 1.

Robert Tipp of PGIM Fixed Income emphasized the importance of this liquidity restoration, particularly for “basis trades” arbitrage strategies where investors profit from the pricing gap between Treasuries and Treasury futures. These trades rely heavily on repo funding, and a dysfunctional repo market could pose broader risks to market liquidity and price stability.

By stepping in early, the Fed appears to be signaling a shift away from passive normalization and toward active liquidity management. The timing, just before the year-end rollover, suggests that the Fed aims to suppress any spikes in borrowing costs that could ripple across the financial system, particularly in light of fragile investor confidence following a divided rate cut decision.

Targeted Liquidity Support Marks Tactical Pivot

The Federal Reserve’s resumption of Treasury bill purchases signals more than just a response to technical market pressures it represents a targeted policy adjustment to stabilize short-term funding costs and protect broader financial conditions. Though not a full-scale return to quantitative easing, the move highlights the Fed’s responsiveness to liquidity signals and its willingness to adapt policy tools when systemic funding stress emerges.

Looking ahead, this action could serve as a template for similar interventions should volatility in the repo market re-emerge, especially during periods of fiscal uncertainty or uneven capital flows. For investors, the move removes an immediate source of risk and reinforces confidence in the Fed’s capacity to manage interest rate corridors with precision.

Source: Reuters

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Commodity

Gold Retreats Amid Fed Uncertainty

Spot gold slipped 0.2% to $4,221.49 per ounce on Thursday morning in Asia, pulling back from a near one-week high reached earlier in the session. This decline came in response to a policy move from the U.S. Federal Reserve that, while reducing interest rates by 25 basis points, exposed deep divisions among policymakers and cast doubt over future cuts. Although U.S. gold futures for February delivery managed a 0.6% gain to $4,249.70, the overall market reaction reflected caution.

The Fed’s decision was not unanimous. Six members opposed even this quarter-point reduction, an unprecedented show of resistance that dampened hopes for a sustained easing cycle. Chair Jerome Powell reinforced this stance by withholding any guidance on the timeline for further cuts and emphasizing that inflation remains elevated while labor market conditions are yet to provide a clear signal for policy loosening. This ambiguity weakened gold’s momentum, despite the asset’s typical inverse relationship with interest rates.

Divided Fed Limits Gold’s Upside Potential

Gold, a non-yielding asset, tends to benefit from lower interest rates because such conditions reduce the opportunity cost of holding bullion. However, the latest policy update suggests a cautious, data-dependent Fed going into 2026. Investors are now looking ahead to key economic releases particularly November’s jobs and inflation figures and the upcoming detailed Q3 GDP revision to assess whether the central bank may be compelled to resume easing.

According to Tim Waterer, Chief Market Analyst at KCM Trade, “Gold has been unable to kick on with things today… because the Fed's message was essentially that any further rate cuts could be few and far between.” This remark highlights a causal relationship between the Fed’s tempered outlook and gold’s inability to sustain earlier gains.

Silver Defies Broader Market Caution, Hits All-Time High

In stark contrast to gold, silver surged to a record high of $62.88 per ounce before stabilizing at $62.25, up 0.8% on the day and boasting a staggering 113% year-to-date gain. The silver rally appears to be driven more by supply and demand fundamentals than monetary policy cues. With inventories falling and industrial demand particularly from clean energy and electronics on the rise, silver continues to attract speculative and commercial buying.

Another critical factor in silver’s rally is its recent addition to the U.S. critical minerals list, signaling heightened strategic importance and potentially tighter future supply. Ilya Spivak, head of global macro at Tastylive, noted that silver’s price trajectory appears to be largely independent of the macroeconomic noise: “Silver hasn’t really paid attention to things outside and has been rallying all by itself.” He added that $64 per ounce is now the next psychologically significant resistance level.

This divergence between gold and silver highlights a key point: while gold remains tightly linked to Fed policy and macroeconomic sentiment, silver's price movements are increasingly shaped by structural market factors, suggesting a different type of resilience and investor behavior.

Other Precious Metals Mixed Amid Market Crosscurrents

Platinum edged up 0.3% to $1,660.50, continuing its recent mild recovery, likely supported by similar industrial drivers as silver. However, palladium fell 0.2% to $1,479.70, extending its underperformance relative to other precious metals. Unlike silver, palladium has struggled with a weaker demand outlook due to declining automotive usage and substitution trends.

The post-Fed market reaction underscores diverging narratives within the precious metals space. While gold is grappling with a policy-sensitive environment where uncertainty over future U.S. interest rates dampens near-term enthusiasm, silver is benefiting from powerful secular tailwinds in demand and tightening supply. These divergent trajectories suggest that investors may need to recalibrate their strategies within the sector, balancing gold’s macro sensitivity with silver’s industrial strength. The evolving dynamics reinforce the importance of distinguishing between correlation and causality in market behavior, particularly during periods of policy transition.

Source: Reuters

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Economic

Rupee Poised to Open Higher After Fed-Induced Dollar Retreat

The Indian rupee is projected to start Thursday’s trading session on a firmer footing, tracking gains across Asian currencies after the U.S. Federal Reserve’s latest policy move weakened the dollar. One-month non-deliverable forwards suggest the rupee could open around 89.85 per U.S. dollar, a slight appreciation from the prior close at 89.9650. This potential uptick comes in the wake of the Fed's widely expected 25 basis point cut, which placed the benchmark interest rate at 3.5%–3.75%, its lowest level this year.

What stood out more than the rate cut itself was Chair Jerome Powell’s post-meeting press briefing, where he emphasized that further rate hikes were unlikely in the near future. His remarks, interpreted as less hawkish than feared, spurred a sharp drop in the dollar and U.S. Treasury yields, while sparking a rally in Wall Street that extended into Asian equities.

Weaker Dollar Offers Short-Term Support

The U.S. dollar index, which tracks the greenback against a basket of major currencies, fell 0.6% on Wednesday to hover near 98.58 its lowest in two months. This broad retreat in the dollar has offered immediate support to the rupee, which recently slipped to an all-time low of 90.42 before consolidating above that level.

Despite the temporary reprieve, market participants remain cautious. While the Fed’s dovish undertone may ease immediate currency pressures, the rupee’s trajectory remains vulnerable to global capital movements and domestic macroeconomic imbalances. Foreign investors pulled out $236.5 million from Indian equities and $36.6 million from bonds on December 9 alone, as per NSDL data, reflecting continued risk aversion toward Indian assets.

Capital Outflows and Trade Uncertainty Weigh on Outlook

Although the dollar’s softness has opened the door for a modest rupee recovery, analysts remain skeptical about the currency’s medium-term strength. The absence of a bilateral trade agreement with the U.S., combined with continued equity and bond outflows, limits upside potential. This reveals a causative link: the weak trade diplomacy and investor sentiment are actively contributing to rupee underperformance.

Goldman Sachs echoed this view in a client note, stating that while the worst phase of rupee underperformance may have passed, significant gains are unlikely unless capital flows stabilize and the Reserve Bank of India (RBI) can rebuild its foreign exchange reserves. Accordingly, the bank revised its rupee forecast downward to 91 over the next six and twelve months, a sharp adjustment from earlier projections of 87.50 and 86.50.

Broader Market Conditions Show Mild Optimism

Oil prices, another key factor for the rupee given India’s reliance on imports, edged up 0.4% with Brent futures trading at $62.4 per barrel. The modest rise in oil may slightly dampen rupee gains due to increased import bills, but it remains manageable within current valuation ranges.

Meanwhile, U.S. 10-year Treasury yields dropped to 4.14%, reflecting reduced expectations of further tightening. This yield compression can enhance the relative attractiveness of emerging market debt, offering a potential channel for capital re-entry if geopolitical and macroeconomic uncertainties subside.

While the Federal Reserve’s dovish messaging and falling dollar have created favorable conditions for the rupee’s near-term rebound, the underlying trajectory is still shaped by broader structural challenges. The link between trade diplomacy, capital flows, and currency performance remains central. Unless India secures more consistent foreign investment and improved external account dynamics, any appreciation in the rupee is likely to remain constrained within a narrow range. The RBI’s reserve strategy and geopolitical developments will be crucial determinants in the months ahead.

Source: Reuters

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Economic

A Divided Fed Delivers a Final 2025 Rate Cut

The U.S. Federal Reserve’s third and final rate cut of 2025, reducing the benchmark rate by 25 basis points to 3.5%–3.75%, was expected yet layered with mixed messaging. While the cut was anticipated, the overall tone of the announcement was notably hawkish. Two members of the Federal Open Market Committee Jeffrey Schmid and Austan Goolsbee voted to keep rates unchanged, while one member advocated for a deeper cut. This split decision revealed the Fed’s internal caution about overstimulating an economy still navigating inflationary pressures and geopolitical uncertainty.

President Donald Trump, however, openly criticized the modest rate move, claiming it should have been “at least doubled.” At the same event, he hinted at interviewing former Fed Governor Kevin Warsh for the Fed chair position, stirring additional speculation about future shifts in monetary policy leadership.

Markets Cheer Despite Hawkish Undertones

While the policy stance reflected restraint, equity markets responded with optimism. The Dow Jones Industrial Average jumped 1.1%, buoyed by investor confidence in the Fed’s subtle shift toward easing. The S&P 500 and other key indexes rose in tandem, encouraged by signs that rate hikes are unlikely to return anytime soon. This reaction suggests a positive correlation between market sentiment and liquidity expansion even when interest rate cuts are delivered with a caveat.

The real catalyst for the rally appeared to be the Fed’s unexpected announcement of a $40 billion Treasury bill purchase program, set to begin Friday. Though not framed as quantitative easing, this move effectively increases the money supply, offering liquidity to financial markets without a full pivot to dovish policy. It represents a calculated adjustment, signaling the Fed’s willingness to maintain financial stability while holding a firm stance on inflation management.

Fed Reassures Markets: No Rate Hike Expected

Chair Jerome Powell further soothed market nerves during the post-meeting press conference. When asked about the possibility of rate hikes in the near term, Powell firmly responded that such an outcome is not part of anyone’s “base case.” This dismissal of further tightening helped reinforce investor confidence, underscoring a broader belief that the tightening cycle is definitively over.

More importantly, the Fed upgraded its GDP forecast for 2026 to 2.3%, up from its previous 1.8% projection. This revision suggests that the central bank perceives the economy as fundamentally strong, capable of sustaining moderate growth even without aggressive stimulus. Powell summarized the outlook succinctly: “We have an extraordinary economy.”

This optimism may explain why investors have begun anticipating a “Santa Claus rally” to close the year, with José Torres of Interactive Brokers forecasting that the S&P 500 could surpass the 7,000 mark in the coming weeks a sentiment fueled more by liquidity injections and resilient earnings than interest rate cuts alone.

Oracle Disappoints, Trump Provokes Europe

Outside of central bank developments, other headlines also shaped the trading narrative. Oracle reported fiscal second-quarter revenue of $16.06 billion, growing 14% year-over-year but still falling short of Wall Street expectations. Although its AI-related backlog beat estimates, shares tumbled over 11% in after-hours trading, indicating investor concern over broader tech sector earnings sustainability.

Meanwhile, geopolitical tensions simmered as President Trump referred to European leaders as “weak” in their response to the Ukraine war. These comments, published by Politico, landed poorly amid Europe’s ongoing support for Ukraine and further highlighted the diplomatic rift between Washington and its allies. The remarks could influence investor risk appetite in European markets, particularly given the ongoing lack of European participation in U.S.-led negotiations over a potential Ukraine peace plan.

The December 2025 rate cut encapsulates the Federal Reserve’s challenge of balancing cautious economic stewardship with the need to support markets and growth. Though the cut was modest and hawkish in tone, investors interpreted it as a signal that financial conditions will not tighten further, and that the Fed is prepared to inject liquidity through asset purchases if needed. While this response may reflect a correlation more than direct causality, it suggests investor confidence remains tightly linked to central bank signals, especially when coupled with a resilient economic forecast. As the year closes, markets appear poised for further gains, though sustained optimism will likely depend on how these monetary signals translate into real economic performance.

Source: CNBC

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Federal Reserve’s Rate Cut Fails to Sustain Asian Momentum

The Federal Reserve’s decision to lower the federal funds rate by 25 basis points to a range of 3.5%–3.75% briefly lifted global investor sentiment. Chair Jerome Powell stated that the Fed is now well-positioned to “wait and see” how the economy unfolds, marking a possible end to the current easing cycle. This message, intended to reassure investors of policy stability, coincided with U.S. stock gains but failed to sustain momentum in Asia-Pacific markets.

The Dow Jones Industrial Average surged by 1.1%, the S&P 500 rose by 0.7%, and the Nasdaq climbed 0.3% following the announcement. These movements reflected investors’ temporary optimism that the Fed might be pivoting toward policy support amid a weakening labor market and persistent inflation concerns, partly attributed by Powell to tariff-related pressures.

Asia-Pacific Markets Reverse Early Gains

Despite initially responding positively, most Asia-Pacific indexes lost ground by the end of Thursday trading. Japan’s Nikkei 225, which opened higher, ended the session down 1.11% to 50,040.65, while the broader Topix index also slipped by 0.52%. The loss appears to reflect investor doubts over the sustainability of global growth without further monetary stimulus.

South Korea's Kospi declined 0.73% to 4,104.85, while the Kosdaq fell 0.36%. Meanwhile, the Hang Seng Index in Hong Kong dipped marginally by 0.06% to 25,526.38 after a short-lived 0.1% rally, indicating a rapid reassessment of risk in a fragile economic environment. The mainland Chinese CSI 300 index also posted minor losses, suggesting investors were not comforted by the Fed's decision.

Australia’s S&P/ASX 200 index remained flat, closing slightly up 0.09% at 8,587.10. This muted reaction suggests that local markets remain cautious about global economic uncertainty and await domestic catalysts.

ZTE Stock Slump Highlights Regional Vulnerabilities

A notable decline came from ZTE Corp, whose shares plunged more than 5% following reports that the company may be fined over $1 billion by the U.S. government for alleged foreign bribery. This event had a direct and negative effect on regional sentiment, particularly in technology-heavy sectors, illustrating how firm-specific geopolitical risks can reverberate through broader markets.

Beyond the rate cut, the Fed announced plans to resume purchases of $40 billion in Treasury bills starting Friday. Short-term Treasury yields fell as a result, indicating a potential shift in investor focus from inflation control to economic support. This move may signal that the Fed is subtly rebalancing priorities amid slowing labor momentum, as evidenced by the removal of language that previously emphasized a “low” unemployment rate in official statements.

The U.S. dollar also weakened, with the dollar index falling to as low as 98.54 its lowest point since October 21. This trend might further pressure Asia’s export-oriented economies, as currency strength against a declining dollar may reduce competitiveness in global trade.

Interplay of Economic Factors and Investor Sentiment

While the Fed’s rate cut initially provided a tailwind to equity markets, its effects appear to have been short-lived across Asia. This pattern suggests a potential correlation not necessarily causation between U.S. monetary policy and Asian market performance, where broader regional factors such as geopolitical risks (e.g., ZTE’s case), local economic conditions, and trade uncertainty continue to dominate investor decision-making.

The divergence between initial market optimism and later-day losses highlights a deeper sentiment shift. Investors may increasingly interpret policy pauses not as confidence signals but as signs of limited central bank flexibility in facing persistent inflation and weak growth both domestically in the U.S. and globally.

Although the Fed’s rate cut was intended to reinforce confidence, markets across the Asia-Pacific region responded with caution rather than enthusiasm. The fading gains underline that monetary easing alone may no longer be sufficient to anchor optimism, particularly when confronted with structural risks, trade headwinds, and corporate uncertainties such as ZTE’s legal troubles. As 2025 winds down, investors appear to be reassessing their risk appetite, awaiting clearer signs of sustainable economic growth across major economies.