The Victory Lap Cut

In the most anticipated December 2025 FOMC meeting, the Federal Reserve delivered a historic 50 basis point rate cut — its most aggressive move since the pandemic emergency measures. Chair Jerome Powell declared victory in the battle against inflation, noting that core PCE had fallen to 2.1% while unemployment remained stable at 4.1%. The vote was 11-1, with only one hawkish member dissenting. Markets exploded higher: the S&P 500 surged 3.1%, Nasdaq gained 4.2%, and small-cap stocks led with 6% gains as borrowing costs finally ease.

Powell’s press conference was unusually dovish, stating that the Fed now has 'substantial confidence' inflation is sustainably returning to target and that policy can shift toward supporting maximum employment. The dot plot revealed three additional cuts expected in 2026, bringing the federal funds rate to 3.25–3.5% by year-end. Treasury yields collapsed, with the 10-year dropping below 4% for the first time since 2023.

The Soft Landing Confirmed

This marks the official confirmation of the long-predicted 'soft landing' — the first time in history the Fed has successfully tamed inflation above 9% without triggering a recession. Corporate earnings remain robust, consumer spending is resilient, and the labor market shows only mild cooling. The combination of falling rates and strong fundamentals has created the perfect environment for risk assets heading into 2026.