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A construction worker draws an eagle on the Marina S. Eccles Federal Reserve Building, the main office of the Board of Governors of the Federal Reserve System, on September 16, 2025 in Washington, DC.
Kevin Dickey | Getty Images
Christmas tailoring?
Fast forward a few weeks and Christmas cuts are back on the table.
Berenberg said the recent rise in unemployment is enough to prompt Fed officials to cut interest rates by 25 basis points next week. On Friday, Morgan Stanley cut its December forecast to a quarter of a percentage point, with strategists saying “it looks like we’ve been too hasty.” JPMorgan Chase & Co. and Bank of America Corp. are also forecasting rate cuts based on recent dovishness from Fed officials.
When the Fed sneezes…
So how will this dovish shift play out internationally? First, the Swiss National Bank releases its policy decision on Thursday. Despite recent weaker inflation and GDP growth data, the SNB is widely expected to keep interest rates at 0.00%.
However, Nomura expects prices and growth to rise in 2026, adding that “the threshold for negative policy rates is high.” This view is echoed by BNP Paribas, with economists predicting in a recent report that the SNB will remain on hold until the second half of 2027.
mixed message
The situation at the Bank of England is different. The Monetary Policy Committee met on December 18 and was divided on its next steps.
T. Rowe Price believes a rate cut is possible, predicting further deterioration in the labor market in the coming months and predicting interest rates will fall to 3% in 2026. However, Berenberg said the conditions for a rate cut would not be met in time for the December meeting, but would happen in the new year.
Bank of England rate setter Megan Greene told CNBC that stubborn inflation and labor market dynamics will delay rate cuts for the time being.
Will the European Central Bank stay the course and the Bank of Japan will raise interest rates?
The European Central Bank is also preparing for its final rate-setting meeting of the year. After keeping interest rates at 2% for a second consecutive meeting in October, Deutsche Bank believes that “rates are likely to remain on hold amid lower-than-expected energy-induced inflation in 2026.”
Finally, the Bank of Japan seems likely to raise interest rates in December, with multiple reports from Reuters and Bloomberg indicating that the Japanese government will not try to prevent the central bank from raising interest rates within a few weeks. But this could create greater volatility, particularly in bond markets, 10-year JGB yield surges to highest level since 2007.
December central bank activity:
December 10: Fed policy decision
December 11: SNB policy decision
December 18: Bank of England policy decision
December 18: ECB policy decision
December 19: Bank of Japan policy decision
