Weekly Market Update: December 8, 2025
The Federal Reserve was expected to reduce the benchmark short-term interest rate at the next Federal Open Market Committee (FOMC) meeting, which was scheduled to conclude on December 10th. That would mark the third-consecutive quarter-point cut this year, bringing the federal funds rate to a range of 3.50% to 3.75% and closer to what would be considered a neutral rate – that is, one not expected to either stimulate or cool the economy. The central bank is worried about inflation, but the “balance of risk” seems to have shifted more to the employment side.
The Fed also wants to avoid keeping monetary policy too restrictive and risk hindering economic growth. Recent data suggest pockets of weakness in the U.S. economy. On point, the Institute for Supply Management reported that manufacturing activity contracted for the ninth-consecutive month in November, with survey respondents noting that tariffs are impacting demand for domestically produced goods as well. Likewise, sales of existing and new homes remain sluggish, as higher mortgage rates and home prices continue to push many would-be buyers out of the market.
Inflation remains sticky. Both the September Consumer and Producer Price Index reports showed inflation is still running above the Federal Reserve’s target rate of 2.0%. However, oil prices are still relatively benign, and the Trump Administration recently cut and/or eliminated tariffs on certain food commodities, including beef and coffee. Overall, central bank leaders, though split on the appropriate near-term monetary policy course, were likely to cut interest rates this month. The difference of opinions among FOMC voting members also is why Wall Street expects the central bank to pause on the interest-rate front in January.
The consumer sector will be a focus of Wall Street, as the holiday shopping season progresses. Here, the initial reports were encouraging, with U.S. retail sales on Black Friday rising 4.1% year over year, according to Mastercard SpendingPulse. Given that the sector accounts for nearly two-thirds of the gross domestic product (GDP), this augurs well for retailers and the overall health of the domestic economy.
Conclusion: With the Federal Reserve loosening the monetary reins, which included the ending of its quantitative tightening program on December 1st, the stage may be set for another “Santa Claus” rally.
Source: ValueLine.com
