Written by Ilaria Massei
The Federal Reserve (Fed) delivered its final interest rate cut of the year last Wednesday, lowering rates by 25 basis points to a range of 3.5%-3.75%. Fed Chair Jerome Powell said the decision followed an intense debate among the 12 voting members of the Federal Open Market Committee (FOMC). The overriding macroeconomic theme remains the delicate balancing act facing the Fed and other central banks: how to support growth and labour markets while keeping inflation in check.
This conundrum is common to all central banks when making monetary policy decisions – whether to raise, cut, or maintain interest rates. Raising rates is intended to slow economic activity and inflation, while cutting rates aims to stimulate an economy that is slowing excessively, damaging the labour market. The Fed opted to cut rates and Chair Powell made it clear that the decision was driven by an unemployment rate that had “edged up through September”, alongside “downside risks” to the labour market. In addition, the Fed’s latest quarterly economic projections anticipate a sharper decline in inflation next year than previously expected.
Some FOMC members argue that the US economy is no longer creating jobs at a sufficient pace, while others believe persistent inflationary pressures in the services sector – which dominates US economic output – leave the Fed with limited room to reduce borrowing costs further. Ultimately, 9 of the 12 rate-setters supported the cut, with 2 members favouring holding rates steady, and one calling for a larger, half-point cut.
The latest unemployment data were released in November for September, following the US government shutdown, and showed an increase in the unemployment rate to 4.4% – the highest level since October 2021. October’s data will not be released due to data unavailability during the shutdown, meaning the Fed made its decision amid incomplete labour market information, with additional data due to be published tomorrow, 16thDecember.
Another setback last week came from Oracle’s earnings release. The company reported weaker-than-expected revenues on Wednesday and announced a further $15bn increase in planned data-centre investment this year to support artificial intelligence clients. The stock has since given back most of its recent gains, as investors grew concerned about the scale of borrowing and capital spending required to build infrastructure for OpenAI, Oracle’s client and ChatGPT’s creator, as well as questions around the start-up’s ability to meet these contractual commitments over the longer term. Given Oracle’s role within the broader AI ecosystem, the results weighed on sentiment across the sector, contributing to a -2.0% decline in the Nasdaq-100 last week, the index of the largest US technology stocks.
While uncertainty clouds the US outlook for 2026, it is worth remembering that 2025 demonstrated how strong returns can also be generated elsewhere. Overall, it was a positive year for both fixed income and a range of equity markets. Despite a turbulent start to the year driven by US tariff threats, equities across Europe, the UK, Japan, and China are set to close the year with double-digit returns, both in local currencies and for GBP-based investors.
While it is difficult to predict future economic outcomes, 2025 exemplified that a diversified investment approach across regions and asset classes is an effective way to navigate uncertainty.
All performance figures are stated in Sterling terms, unless otherwise specified.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th December 2025.
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